How borrow factor will be used on the Algofi Lending V2.
Users supply assets to the protocol as collateral to borrow against, but not all borrowable assets are treated equally. The dollar price of stablecoins tends to be very stable, while assets like ALGO exhibit more price volatility. Furthermore, the liquidity of risky tokens tends to deteriorate during market sell offs.
As a result, when calculating how much a user can borrow against their collateral, the Algofi protocol can be adjusted to allow more maximum borrow in lower volatility assets like stablecoins and lower maximum borrow in higher volatility assets like ALGO.
The borrow weighting is done with a Borrow Factor. The Borrow Factor represents how much a user can borrow against the collateral supplied to the protocol, in percent terms. For example, $100 borrowed of an asset with a borrow factor of 110% results in an effective borrow amount of $110, which must be offset by supplied collateral.
Borrow Factors are employed to keep the protocol safe and liquid. During market sell offs, as collateral values fall, higher borrow factors for more volatile assets will encourage faster liquidation of riskier debt which helps ensure the protocol is kept whole.
At this time the borrow factor for all assets is the same, which reduces their impact to just a simple re-normalization of the collateral factors. In the future the DAO may vote to differ these borrow factors across assets to increase protocol utility.
TLDR - The borrow factor of riskier assets like ALGO tends to be lower than the borrow factor of safer assets like stablecoins. Differential borrow factors have yet to be implemented on the Algofi protocol.