> For the complete documentation index, see [llms.txt](https://2hot-dao.gitbook.io/2hotdao-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://2hot-dao.gitbook.io/2hotdao-docs/2hot-protocol/borrow.md).

# Borrow

## What is BORROW in DeFi?

**Decentralized borrowing** refers to a borrowing system that operates without a central authority or intermediary. In a decentralized borrowing system, loans are facilitated through smart contracts and executed on a blockchain, eliminating the need for a traditional financial institution such as a bank or credit union.

Decentralized borrowing is often associated with decentralized finance (DeFi), which aims to create a **permissionless, open, and transparent financial ecosystem** using blockchain technology.

## How does DeFi Borrow work?

Initiating a Borrow request: \
**Users can initiate a borrowing request** by specifying the amount they want to borrow and the cryptocurrency they want to borrow (usdHOT/USDT). The **smart contract of the 2HOT platform evaluates the loan request** and verifies the collateral deposited by the user.

If the borrow terms are accepted, the borrowed amount is transferred to the user's wallet. **Users can use the borrowed funds as they wish**, such as for investment, withdrawals, trading, or other purposes.

```
Balance = Principal * BaseSupplyIndex [Principal > 0]
Balance = Principal * BaseBorrowIndex [Principal < 0]
```

## Borrow repay

**Users are required to repay the loan** according to the agreed-upon terms, including the repayment amount and schedule. **Failure to repay the loan on time may result in penalties** or liquidation of the collateral.\
2HOT DAO, will use its governance system of the corporational loans.

Once the borrow is repaid in full, users can retrieve their collateral from the smart contract. If the loan is not repaid, the collateral may be liquidated by the smart contract to recover the outstanding debt.

```javascript
function collateralBalanceOf(address account, address asset)
 external view returns (uint128)
```

* `account`: The address of the account in which to retrieve a collateral balance.
* `asset`: The address of the collateral asset smart contract.
* `RETURNS`: The balance of the collateral asset in the protocol for the specified account as an unsigned integer scaled up by 10 to the “decimals” integer in the asset’s contract.

## 2HOT Earnings

**2HOT use the collateral amount for providing staking liquidity directly from the Smart Contracts signed by the borrower and $xHOT token liquidity.** \
Meaning that provided collateral amount will be automatically locked on Smart Contract until the borrower repays the loan, and **rewards earned from the Staking LP** will be **distributed to the 2HOT DAO members in the form 1-11-111, etc.**&#x20;


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