TORQ
TORQ explains governed credit operations for digital and tokenized assets.
- 03 OCT 2026
- 5 min read
The cost of borrowing
An asset's income or price gain is only one side of a leveraged position. Calculate debt cost, fees, loan-to-value, and the unwind before deciding whether added exposure is worthwhile.
Borrowing against an eligible asset can release liquidity or fund another purchase. It also leaves the borrower owing principal and floating interest while collateral value may change.
The useful calculation separates cash income, market-price movement, borrowing cost, transaction costs, and the ability to unwind. For tokenized stocks, price appreciation is not recurring yield, and the token's actual distribution rights must be verified.
A USD 100 starting position and USD 50 draw.
Assume a borrower owns USD 100 of an eligible asset, borrows USD 50, and uses the proceeds to buy USD 50 more of that same asset. Ignore changes in price for the first-year income illustration.
Total exposure is USD 150, debt is USD 50, and opening loan-to-value is 33.3%.
If the asset pays an assumed 10% annual cash return and the borrowing rate averages an assumed 7%, the added USD 50 exposure earns USD 5 while the debt costs USD 3.50.
If additional transaction and operating costs total USD 1, the incremental pre-tax cash result is USD 0.50. It is an example, not a TORQ rate or a promised return.
The USD 100 original position would have earned USD 10 under the same assumption. The borrowing decision adds only the USD 0.50 modeled surplus while increasing price and liquidation exposure.
A higher floating rate, lower asset income, extra fees, or an inability to reinvest on these terms removes that surplus.
What a price fall does to the same position.
Now assume an immediate 20% asset-price fall before any income or interest accrues. The USD 150 position becomes USD 120, while the USD 50 debt remains.
Borrower equity falls from USD 100 to USD 70, a USD 30 loss, versus a USD 20 loss on an unleveraged USD 100 holding. LTV rises from 33.3% to 41.7%.
At a 60% price fall, the position is worth USD 60 and LTV is 83.3%.
If an illustrative liquidation threshold were 80%, that position would breach it before considering interest, fees, execution slippage, or policy changes. This is a sensitivity example, not a TORQ collateral parameter.
- No change
- USD 100 without debt: USD 100 equity
- USD 150 exposure, USD 50 debt: USD 100 equity at 33.3% LTV
- Down 20%
- USD 100 without debt: USD 80 equity
- USD 150 exposure, USD 50 debt: USD 70 equity at 41.7% LTV
- Down 60%
- USD 100 without debt: USD 40 equity
- USD 150 exposure, USD 50 debt: USD 10 equity at 83.3% LTV
Model the unwind before opening the position.
- Can the additional asset be sold or redeemed when the borrower needs to repay?
- Which market price, NAV, and freshness rules determine borrowing capacity and liquidation?
- What happens when the underlying market is closed but interest continues to accrue?
- How would a higher floating rate, a lower distribution, or a wider sale spread change the result?
- Which exact actions and assets are supported in the live facility? Automated recursive borrowing is not established by a manual borrow example.
