I am trying to understand how sovryn works and I do not understand why someone would borrow with “fixed interest” instead of using “zero”.
Issuing a zero loan as far as I understand is locking my rBTC as collateral and getting dollars with one time 5% origination fee (if I understand correctly there is no time limit since I am issuing the loan to myself) while borrowing with fixed interest I obviously have to use a collateral with the same risk as in zero but interest is higher. So I don’t see any advantage and that’s why I would like to know if there is any reason or advantage in using fixed interest instead of zero?
If there’s no real advantage in doing so, then imagine I lock rBTC, I get dollars and I lend them at a higher interest than the loan origination fee of 5%, where would the yield come from if most users do zero loans?
Fixed interest loans have the advantage that you are pretty much in control of setting your collateral ratio. This means e.g. you can put a collateral twice the amount of dollars (DLLR) you want to borrow and you can go ahead feeling your loan is reasonably safe and healthy.
With Zero your loan can be redeemed by other participants if the collateral ratio is considered low and at risk. This has gotten out of hand, to the extent that you need collateral ratios of +1000% in order to feel relatively safe from redemptions. That means with Zero you can only receive a very small loan, if you don’t have loads of BTC to spare as collateral. In the current setting you could e.g. get a 10’000 dollar loan for putting 1 BTC as collateral.
So, if you have lots of BTC to spare for your desired loan on Zero, Zero is the better choice. If not, you’re better of with a fixed interest loan.