> For the complete documentation index, see [llms.txt](https://paydax.gitbook.io/paydax-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://paydax.gitbook.io/paydax-docs/paydax-whitepaper-v6/how-does-it-work.md).
# How Does It Work?
**Step 1: Deposit Collateral** Start by locking your assets—like PDP, USDC, Bitcoin,
Ethereum, staked tokens, or even tokenized gold or real estate—into a secure digital vault
managed by a smart contract (specifically, the LendingPool contract). Over 15 types of
assets are supported. For example, if you lock $1,000 worth of ETH, you'll unlock borrowing
power for USDC.\\
\
**Step 2: Borrow Assets** Once your assets are secured, you can instantly borrow blue-chip
cryptocurrencies. For instance:
* With blue-chip crypto as collateral, you can borrow USDC, ETH, or BTC (up to 75%
LTV at 6% APR)
* With PDP as collateral, you can borrow blue-chip assets (up to 80% LTV at 5%
APR)
The borrowed assets can be spent, saved, or invested—with clear, fixed interest rates.\\
\
**Step 3: Maintain Health** **Factor** Your Health Factor (HF) acts like a safety gauge for your
loan. It must stay above 1.0 to avoid liquidation. For instance, if your collateral's value drops
or borrowed amount accrues interest, your HF might decrease. The system, via the
CollateralManager contract, monitors this in real-time. You'll receive warnings if your HF
approaches 1.1, prompting you to add more collateral or repay some of your debt.\\
\
**Step 4: Earn Rewards** After borrowing, or independently, you can participate in the Paydax
ecosystem to earn rewards:
* **Lend Assets:** Supply blue-chip cryptocurrencies to the LendingPool and earn a
share of the interest paid by borrowers (expected APY 4-6%)
* **Stake PDP in Stability Pool:** Help secure the protocol and earn a share of
liquidated collateral and liquidation penalties
* **Stake PDP (Phase II):** Earn a share of overall protocol fees (target 8-12%
APY) and participate in governance
---
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