Decentralized Leverage

Decentralized leverage is the back bone of Evo Exchange's Margin and Shorting capabiliites.

When you deposit assets into the exchange, they are pooled together in the exchange contract, while all being mapped to their specific owners. This allows users who are trading margin and short positions to be able to borrow assets from the pool for their positions.

Being paid a lendingrate, users are incentivized to hold assets in the Exchange smart contract. The lending rate is calculated individually on each asset depending on the total amount of that asset held on the exchange and the total amount that is being borrowed; this is called the "Borrow Proportion". The higher the "Borrow Proportion" is, the higher the interest rate is, and therefore the higher the lending rate for that asset is, which further incentivizes more users to add their assets into the Exchange smart contract.

Should users withdraw large amounts of an asset from the Exchange smart contract, this makes each user's interest rate who is borrowing that asset shoot up. There are many things that could happen under this scenario, here are some examples:

1) The user borrowing that asset closes out his position because the interest rates are too high.

2) The user's position becomes liquidated because the interest payments are high enough that they bring down their Total Portfolio Value below their Aggregate Maintenance Margin Requirement.

3) There is an efficient market that sees the opportunity of high interst rates and they add assets to the Exchange smart contract to take advantage of it, therefore lowering the interest rates.

4) The user continues adding collateral to his position to maintain it.

As discussed in the Margin and Shorts section, there are strict controls to ensure borrowers are able to pay back their outstanding balances and users with assets in the exchange are able to withdraw their assets at any given moment.