Moonwell lending and borrowing within live market limits

A compatible market comes before the transaction

Start by matching the wallet's active network and asset to a market that the app currently lists; for an ERC-20 token, verify its contract address. The wallet also needs the network's native gas token, even when the asset being supplied or borrowed is different. A familiar ticker isn't enough because tokens with similar symbols can have different contract addresses. The selected market must recognize the exact asset held by the wallet.

If no matching market appears, stop before granting an approval or signing a supply transaction. Switch the wallet to a supported network only if the correct asset and gas are already available there, then repeat the compatibility check. Switching the interface without switching the wallet network doesn't resolve the mismatch.

The limits that define room to act

Three market controls answer different questions. None can substitute for another.

Supply cap

A supply cap limits the total amount that a market can accept. When existing deposits have filled that capacity, another supply may be unavailable even though the wallet holds the correct asset. Partial capacity may support a smaller amount. The cap and current total supply are live values, so an earlier screenshot doesn't establish room for a later transaction.

View image file

Collateral factor and credit

The collateral factor determines how much of a supplied asset's value contributes to borrowing power. Moonwell combines the eligible value across collateral-enabled markets to calculate the account's credit limit. An asset with a zero collateral factor may still have a supply function, but it adds no borrowing capacity. Credit remaining is that limit minus the value of outstanding debt.

Borrow cap and available liquidity

A borrow cap restricts new borrowing based on a market's aggregate debt, while available liquidity measures how much unborrowed asset the market can release now. Cap room can exist when available liquidity is too low, and cash can remain when the borrow cap has been reached. A new borrow needs personal credit, borrow-cap room and enough market liquidity at the same time.

How does lending create a position?

Lending creates an onchain supply position after the market accepts the asset and the transaction confirms. Each supported market uses a corresponding ERC-20 mToken to represent supplied positions. The mToken balance and its exchange-rate accounting track the claim on the underlying asset. Redemption returns the underlying asset when both market liquidity and account conditions permit it.

The base supply rate is variable, and its interest accrues within the market and compounds automatically rather than arriving as a separate wallet payment. Some markets may also display incentive rewards. Those rewards are distinct from base interest, may use an annual percentage rate rather than an annual percentage yield and can require a manual claim. An incentive shouldn't be treated as a permanent part of the underlying rate.

Borrowing starts with collateral and available credit

Borrowing uses an eligible supply position as collateral and creates debt in the selected asset. The collateral must be enabled for that purpose, its factor must contribute credit and the proposed amount must fit below the account limit. Market liquidity and the borrow cap then decide whether the market can release that amount. Passing only the account-level check isn't sufficient.

Once confirmed, the borrowed asset reaches the wallet and the debt appears in the position. Interest starts accruing under that market's rate model. Collateral prices can fall while the borrowed asset's value rises, so credit remaining may shrink from both sides of the position. A larger initial margin leaves more room for those changes, although it doesn't prevent liquidation.

Interest rates follow utilization

Variable rates respond to market utilization, which compares borrowed funds with the supplied balance. At low utilization, less of the supplied balance is borrowed and base supply returns are generally lower. As utilization rises, the rate follows the market's configured curve. A kink marks the point where that curve changes slope, after which borrowing costs may rise more sharply to discourage further utilization and encourage repayment.

Governance can revise the base rate, kink, multiplier and jump multiplier for a market. The displayed annual percentage yield is therefore a snapshot, not a fixed term. Borrow interest continues adding to debt, while the supply side receives its market-defined share of borrower interest. The rate changes when utilization or the configured curve changes.

Withdrawals face account and market constraints

Two independent checks govern a withdrawal: market cash and the account's collateral requirement.

Unborrowed market liquidity

Redeeming mTokens requires enough unborrowed underlying liquidity. High utilization can leave less cash than the supplied balance shown for an account. That condition doesn't erase the claim, but it can block immediate redemption of the requested amount. The transaction may succeed for a smaller amount when some liquidity remains.

Liquidity can return when other participants supply the asset or existing borrowers repay. The available amount remains a live market value until the withdrawal confirms.

Collateral supporting debt

A collateral-enabled supply may also support an open borrow. Withdrawing it reduces the account's credit limit, so the protocol checks whether the remaining collateral still covers the debt. A withdrawal that would create a credit shortfall can't proceed even when the market holds enough unborrowed cash.

Repaying debt can release borrowing capacity, while adding eligible collateral can raise it. Disabling collateral remains subject to the same solvency check whenever debt is open.

When does liquidation become possible?

Liquidation becomes possible once debt exceeds the account's borrowing capacity and creates a positive shortfall. Moonwell calculates credit limit by summing each supplied market value multiplied by that market's collateral factor. Falling collateral prices, a rising borrowed-asset value and accrued interest can move a position toward that boundary. Changes to collateral parameters can also alter the available room.

A liquidator can repay part of eligible debt and seize collateral under the market's live close factor and liquidation incentive. Supply and borrow caps serve a different purpose: they restrict new market activity and don't, by themselves, liquidate an existing account. The boundary changes when debt, collateral valuation or the risk parameters supporting that account change.

Repayment changes the position without withdrawing collateral

Repayment reduces debt, while a new eligible supply changes the collateral side of the calculation.

Paying debt down

A repayment requires the borrowed asset and enough native gas for the transaction. Because interest accrues, the balance due can exceed the amount originally borrowed. A confirmed partial repayment lowers debt and increases credit remaining. Full repayment clears that debt, but the supplied collateral stays in its market until a separate withdrawal succeeds.

Adding eligible collateral

Another supply raises the credit limit only when the market accepts the asset, capacity remains and the position qualifies as collateral with a positive factor. A supply cap can block the deposit, while a zero collateral factor leaves borrowing power unchanged. Any added credit also remains exposed to changes in the asset's oracle-reported value.

Governance keeps live parameters changeable

Governance can revise collateral factors, supply caps, borrow caps, reserve factors and interest-rate curves for individual markets. Those changes can affect new transactions and existing risk boundaries, depending on the parameter. Saved values and old screenshots become stale when a proposal takes effect. The relevant figures are the ones attached to the selected market when the intended transaction is prepared.

Confirmation should match the intended state

A successful supply has a confirmed onchain receipt and a corresponding supply position. A successful borrow adds a debt balance and reduces credit remaining. Repayments lower that debt, while withdrawals reduce the supplied position and return underlying assets to the wallet. A pending signature or submitted transaction isn't final evidence because it may still fail or be replaced.

If a transaction reverts, the lending position doesn't change even though the network may charge gas for the failed execution. Compare the confirmed receipt with the resulting supply, debt and credit values before submitting another transaction. When a supply appears but credit remains unchanged, the asset may not be collateral-enabled or its collateral factor may be zero.