# eIP 46: Increase default borrow factor to 0.50 from 0.28
**URL:** https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609
**Category:** Protocol
**Created:** [January 12, 2023, 9:51am UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609 "2023-01-12T09:51:18Z")
**Posts on this page:** 15
**Page:** 1
### Author:  [@seraphim](https://forum.euler.finance/u/seraphim)
#### Post date: [January 12, 2023, 9:51am UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/1 "2023-01-12T09:51:18Z")
Simple summary:
Pretty straightforward idea. At the moment we have little borrowing of long-tail assets because the current BF requires you to post 100 USD worth of collateral to borrow 25 USD worth of tokens. However, clearly there is demand for more.
For eg, there was lots of LDO shorting up until LDO exploded. This guy for instance was willing to short LDO at very restrictive borrow factors: [https://app.euler.finance/account/0?spy=0x7d070e1ec0d5a144ea036d3f5d6c35e394de7b0a](https://app.euler.finance/account/0?spy=0x7d070e1ec0d5a144ea036d3f5d6c35e394de7b0a)
Similarly, this account has been rather profitable in shorting FTT even at the default factor: [https://app.euler.finance/account/2/?spy=0xaee2ae13ebf81d38df5a9ed7013e80ea3f72e39b](https://app.euler.finance/account/2/?spy=0xaee2ae13ebf81d38df5a9ed7013e80ea3f72e39b)
But there could be a lot more demand for other tokens had the default been higher, which would also generate more fees for the DAO.
When it comes to risks, the major one is liquidations. If there is no onchain liquidity, then liquidators will find it hard to buy the asset on the market to repay debts. But frankly, I don’t see how that becomes much harder from a 0.28 → 0.50 increase.
This also only increases the risk for the long-tail asset lenders, so it’s not systemic.
Lmk what you guys think.
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### Author:  [@patria](https://forum.euler.finance/u/patria)
#### Post date: [January 12, 2023, 10:10am UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/2 "2023-01-12T10:10:46Z")
in favor. But just one question, this proposal is not reversible right? once borrow factor is changed into .50, can’t really go back into .28?
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### Author:  [@seraphim](https://forum.euler.finance/u/seraphim)
#### Post date: [January 12, 2023, 10:26am UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/3 "2023-01-12T10:26:24Z")
Sure it can, if we vote for it. It’s not immutable.
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### Author:  [@patria](https://forum.euler.finance/u/patria)
#### Post date: [January 12, 2023, 11:00am UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/4 "2023-01-12T11:00:10Z")
i mean when we have bunch of borrower at 0.50 bf then are they gonna get liquidated if we revert it back into 0.28?
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### Author:  [@seraphim](https://forum.euler.finance/u/seraphim)
#### Post date: [January 12, 2023, 11:00am UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/5 "2023-01-12T11:00:49Z")
Yes, that is true. We’ll have to communicate this properly and give people time to reduce positions.
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### Author:  [@knightsemplar](https://forum.euler.finance/u/knightsemplar)
#### Post date: [January 12, 2023, 1:11pm UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/6 "2023-01-12T13:11:40Z")
Currently a yes from me. It’s a small increase and could increase demand as more alts are popping off.
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### Author:  [@TylerEther](https://forum.euler.finance/u/TylerEther)
#### Post date: [January 12, 2023, 7:54pm UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/7 "2023-01-12T19:54:11Z")
As a worst-case analysis, with the highest CF being 0.9 and assuming 99% credit utilization, the following sudden\* price increase can result in a bad debt position:
- BF at 0.28: 301%
- BF at 0.50: 125%
_\*: The change occurs between two consecutive oracle updates or blocks_
_Formula: `1/(HIGHEST_CF*BF*HIGH_CREDIT_UTILIZATION)-1`_
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### Author:  [@Raslambek](https://forum.euler.finance/u/Raslambek)
#### Post date: [January 12, 2023, 8:00pm UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/8 "2023-01-12T20:00:28Z")
Sorry for the noob question, but it is proposed to almost double the default BF for all assets. Im just curious what was the rationale behind introducing 0.28 at the start?
The docs says: `When someone activates a lending market on Euler for an asset XYZ, it is by default an isolated tier asset and its **borrow factor is 0.28**. Conservative overcollateralisation is intended to prevent bad debts.`
Additionally, looking at some cross assets, like agEUR that has a strong oracle, liquidity and price stability and has 0,5 BF, I have some concerns whether the proposed changes would not lead to the risk increase.
At the same time, it is obvious that with 0,28 BF there is absolutely no motivation to use the absolute majority of the markets available on Euler. And this situation should be changed to make the protocol more attractive.
So, if there is solid basis to be sure that increasing default BF will to lead to the significant risk increase, u have my full support to do this.
PS. Did not see the above comment, before posting mine. Thanks @TylerEther
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### Author:  [@aeto](https://forum.euler.finance/u/aeto)
#### Post date: [January 16, 2023, 3:33am UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/9 "2023-01-16T03:33:20Z")
This is a huge pain point atm in order to unlock higher borrowing for NFT-Fi assets, eg
PUNK [https://app.euler.finance/market/0x269616d549d7e8eaa82dfb17028d0b212d11232a](https://app.euler.finance/market/0x269616d549d7e8eaa82dfb17028d0b212d11232a)
MILADY [https://app.euler.finance/market/0x227c7df69d3ed1ae7574a1a7685fded90292eb48](https://app.euler.finance/market/0x227c7df69d3ed1ae7574a1a7685fded90292eb48)
These are being rapidly financialized with lending, perps, and even call/put options
Ability to borrow spot is a core primitive that can’t be achieved efficiently atm
EDIT 1:
It would also be great if there were guidelines on how to increase BF outside of manual governance adjustments (or maybe that’s not even possible)
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### Author:  [@seraphim](https://forum.euler.finance/u/seraphim)
#### Post date: [January 16, 2023, 2:42pm UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/10 "2023-01-16T14:42:08Z")
It definitely leads to risk increase, but not systemic as they won’t be collateral or cross assets. This basically increases the bad debt risk to lenders of long-tail assets into the pool. But it also increases lending apys as finally borrowers will come in.
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### Author:  [@caps](https://forum.euler.finance/u/caps)
#### Post date: [January 16, 2023, 7:19pm UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/11 "2023-01-16T19:19:52Z")
would love to see it, especially as borrowing and lending market for NFTs gets more crowded.
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### Author:  [@nyquist](https://forum.euler.finance/u/nyquist)
#### Post date: [January 18, 2023, 6:09pm UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/12 "2023-01-18T18:09:42Z")
+1 to this… short selling actual assets instead of shorting in synthetic markets is preferable for the NFT market at this time, especially given the low liquidity. Euler is currently the only/best venue to directly short-sell, so this change would do a lot to improve development of that market (and increase Euler usage there)
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### Author:  [@Carebbear](https://forum.euler.finance/u/Carebbear)
#### Post date: [January 20, 2023, 7:51pm UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/13 "2023-01-20T19:51:39Z")
Title: eIP 46:Increase default borrow factor to 0.5 from 0.28
Author: @seraphim
Submission Date: 20 January, 2023
**Simple summary:**
Pretty straightforward idea. At the moment we have little borrowing of long-tail assets because the current BF requires you to post 100 USD worth of collateral to borrow 25 USD worth of tokens. However, clearly there is demand for more.
For eg, there was lots of LDO shorting up until LDO exploded. This guy for instance was willing to short LDO at very restrictive borrow factors: [https://app.euler.finance/account/0?spy=0x7d070e1ec0d5a144ea036d3f5d6c35e394de7b0a](https://app.euler.finance/account/0?spy=0x7d070e1ec0d5a144ea036d3f5d6c35e394de7b0a)
Similarly, this account has been rather profitable in shorting FTT even at the default factor: [https://app.euler.finance/account/2/?spy=0xaee2ae13ebf81d38df5a9ed7013e80ea3f72e39b](https://app.euler.finance/account/2/?spy=0xaee2ae13ebf81d38df5a9ed7013e80ea3f72e39b)
But there could be a lot more demand for other tokens had the default been higher, which would also generate more fees for the DAO.
When it comes to risks, the major one is liquidations. If there is no onchain liquidity, then liquidators will find it hard to buy the asset on the market to repay debts. But frankly, I don’t see how that becomes much harder from a 0.28 → 0.50 increase.
This also only increases the risk for the long-tail asset lenders, so it’s not systemic.
**Voting**
Options are:
YES - implement the changes above
NO - do not implement the changes above
**Snapshot**
[Link](https://snapshot.org/#/eulerdao.eth/proposal/0xeb9b8a930c53497494f0ba9af3b4411933b3aa2bbf845140f1645515763e8501)
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### Author:  [@nikita](https://forum.euler.finance/u/nikita)
#### Post date: [January 23, 2023, 1:07am UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/14 "2023-01-23T01:07:05Z")
As in EIP 41 I agree with increasing BF for some assets as in EIP41 or for LIDO, but increasing BF by default seems risky for lenders attracting. It’s easier to increase certain BF, than decrease others because of permissionless nature of protocol.
> [@eIP 41 LDO RAI MIM FRAX COMP AAVE SNX BAL BUSD CRV 1INCH YFI](https://forum.euler.finance/t/eip-41-ldo-rai-mim-frax-comp-aave-snx-bal-busd-crv-1inch-yfi/554/11):
>
> Unless there’re no borrow caps, it seems that not all assets have enough liquidity for BF increasing. I think we shouldn’t sacrifice security for capital efficiency To accept this eIP, Euler Protocol have to implement borrow caps =\> raising BF.
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### Author:  [@ccb\_rocifi](https://forum.euler.finance/u/ccb_rocifi)
#### Post date: [January 26, 2023, 5:59pm UTC](https://forum.euler.finance/t/eip-46-increase-default-borrow-factor-to-0-50-from-0-28/609/15 "2023-01-26T17:59:38Z")
Agreed that capital efficiency can be improved in these long tail asset markets without significantly increasing bad debt risk, if done properly.
**Idea**
One way to phase into this rather than simply increasing borrow factor to 0.50 from 0.28 across the board, you could offer higher borrow factors to borrowers that have a history of managing their risk well.
For example:
> Similarly, this account has been rather profitable in shorting FTT even at the default factor: [https://app.euler.finance/account/2/?spy=0xaee2ae13ebf81d38df5a9ed7013e80ea3f72e39b](https://app.euler.finance/account/2/?spy=0xaee2ae13ebf81d38df5a9ed7013e80ea3f72e39b)
This address’ on-chain credit score is below along with historical behavior. For reference, this address has a fairly bad credit score – our scale is 1 (best) to 10 (worst). If you look, you can see they have been liquidated 14 times.
{‘CreditScore’: 9, ‘Address’: ‘0xaee2ae13ebf81d38df5a9ed7013e80ea3f72e39b’, ‘features’: {‘count\_borrow’: 187, ‘total\_borrow’: 4573733.573649901, ‘total\_repay’: 4281221.316706935, ‘count\_repay’: 124, ‘count\_liquidation’: 14, ‘total\_liquidation’: 42738.67502952931, ‘days\_since\_first\_borrow’: 652, ‘count\_deposit’: 151, ‘total\_redeem’: 8920122.96688564},
**Thoughts**
If feasible, Euler could increase borrow factor for assets which have a certain threshold of ‘good’ borrowers to feel comfortable with increased liquidation risk. Or, could simply offer these increased terms to only the individual borrowers that are least likely to get liquidated.