> For the complete documentation index, see [llms.txt](https://docs.prl.one/buttonwood/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.prl.one/buttonwood/learn/buttonzero/borrowing.md).

# Borrowing

Borrowers can initiate a loan by tranching their collateral, and then selling their safe tranches to lenders for cash. As explained in the user guide, Borrowers can either **'Sell Bonds'** on the spot market, or place an **'Ask Order'** by providing liquidity at their desired price. 

### Example

* A user wants to borrow $1000 using AMPL as collateral
* There is an AMPL bond currently available with the following state:
  * Matures in 6 months
  * 20/30/50 ratios
  * The A-Tranche is currently trading for a slight discount of $0.90
  * The B-Tranche is currently trading for a larger discount of $0.70

Now the user has a range of choices which trade-off collateralization rate for interest rate:

#### *Low collateralization, high interest*

* The borrower deposits 2600 AMPL
* In return they receive:
  * 520 A-Tranches (2600 \* 0.2)
  * 780 B-Tranches (2600 \* 0.3)
  * 1300 Z-Tranches (2600 \* 0.5)
* They sell all of their A-Tranches for $468 (520 \* 0.90)
* They sell all of their B-Tranches for $546 (780 \* 0.70)
* They now have the following:
  * $1014 in cash from selling their tranche tokens
  * 1300 Z-tranches, representing an expected future value of 1300 AMPL, plus/minus all of the next 5-6 months of AMPL value changes
* They paid an "interest rate" of \~22% ((1300 - 1014) / (1300))

#### *High collateralization, low interest*

* The borrower deposits 6000 AMPL
* In return they receive:
  * 1200 A-Tranches (6000 \* 0.2)
  * 1800 B-Tranches (6000 \* 0.3)
  * 3000 Z-Tranches (6000 \* 0.5)
* They sell all of their A-Tranches for $1080 (1200 \* 0.9)
* They now have the following:
  * $1080 in cash from selling their A-Tranche tokens
  * 1800 B-Tranches, representing a likely future value of 1800 AMPL
  * 3000 Z-Tranches, representing a future value of 3000 AMPL, plus/minus all of the next 5-6 months of AMPL value changes
* They paid an "interest rate" of 10% ((1200 - 1080) / (1200))