<figure class="wp-block-image size-large"><img width="325px" height="183px" srcSet="https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/09/26020954/Memecoin-375x211.webp 375w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/09/26020954/Memecoin-662x372.webp 662w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/09/26020954/Memecoin-768x432.webp 768w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/09/26020954/Memecoin.webp 688w" sizes="(max-width: 425px) 150px, 450px" src="https://ll-blog-dev.s3.ap-southeast-2.amazonaws.com/wp-content/uploads/2023/09/26020954/Memecoin.webp" alt="You can&#x27;t borrow more than you deposit" class="wp-image-4065"/></figure>



No… You can’t borrow more than you deposit.



The value of your PLS must exceed, and always exceed, the value of the USDL you minted.



Here’s why.



<h2 class="wp-block-heading tablecontent">Overcollateralization for USDL</h2>



<a href="https://www.thecoinzone.com/blockchain/explained-liquid-loans-defi-protocol-on-pulsechain" target="_blank" rel="noreferrer noopener">Liquid Loans</a> is not just a lending protocol, it’s also a decentralized issuer of a <a href="https://www.thecoinzone.com/stablecoins/the-7-tenets-of-a-decentralized-stablecoin" target="_blank" rel="noreferrer noopener">true-defi stablecoin</a>, USDL.



Therefore, <a href="https://www.thecoinzone.com/liquidloans/usdl-crypto" target="_blank" rel="noreferrer noopener">USDL</a> needs to be fully-backed, actually overly-backed, by collateral. 



That’s why you can’t borrow more than you deposit, because if you did, USDL would be fractionally reserved.



If you know anything about fractional reserves, it’s basically why every bank fails.



Essentially, they don’t have enough capital in reserves to hand out when their depositors come to collect.



From bank failures during the Great Depression to ones like Silicon Valley Bank in 2022, they close their doors when there’s a bank run.



This also happened to Sam-Bankman Fried in 2022, and even happened to the “stablecoin”, UST.



The way to get around this is ABSOLUTELY GENIUS!



Have the funds available when everybody wants to withdraw.



The <a href="https://www.thecoinzone.com/defi/protocol-owned-liquidity/" data-wpil-monitor-id="758">Liquid Loans protocol</a> is designed such that every USDL is redeemable for 1 USD worth of PLS, and that is possible because you can’t borrow more than you deposit.



<h2 class="wp-block-heading tablecontent">Liquid Loans is NOT A Leverage Trading Protocol</h2>



Although collateralizing a risk-on digital asset and borrowing value is technically considered leverage, <a href="https://www.thecoinzone.com/defi/defi-yield-protocol/" data-wpil-monitor-id="269">Liquid Loans is not a leverage trading protocol</a>.



Other traditional <a href="https://www.thecoinzone.com/defi/your-secret-weapon-leverage" target="_blank" rel="noreferrer noopener">leverage</a> platforms make their money by encouraging and enabling their users to take as HIGH OF LEVERAGE AS POSSIBLE.



By doing this, they multiply their advantage by increasing their odds of liquidating you for your entire principal.



In Liquid Loans, you can only take ~91% leverage, and <a href="https://www.thecoinzone.com/liquidloans/how-to-not-get-liquidated" target="_blank" rel="noreferrer noopener">liquidations</a> only cause an immediate loss of 10%.



In other words, during liquidations, you lose your PLS, but you always keep the <a href="https://www.thecoinzone.com/liquidloans/usdl-is-actually-a-store-of-value-but-only-if-you-mint-it-yourself/" data-wpil-monitor-id="1278">USDL you minted</a>.



<h2 class="wp-block-heading tablecontent">The Bottom Line</h2>



<a href="https://www.thecoinzone.com/liquidloans/not-a-tradfi-project/" data-wpil-monitor-id="1049">Liquid Loans</a> was not designed for users to take 50X leverage on memecoins.



<a href="https://www.thecoinzone.com/liquidloans/dont-dump-on-yourself-cash-out-with-liquid-loans/" data-wpil-monitor-id="993">Liquid Loans</a> was designed to allow PLS holders the ability to extract value from their long term holdings without needing to sell.



The result of this is an overcollateralized, truly-decentralized stablecoin backed by PLS and native to PulseChain.

Stablecoins Under Siege: The SEC’s New Rules Aren’t What They Seem

How to Earn Yield While HODL'ing PLS

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Here's What Happens to LL Users When Prices Rise (Actual Numbers)

No, You Can't Borrow More Than You Deposit

You can't borrow more than you deposit because it would upend the health of the <a href="https://www.thecoinzone.com/liquidloans/why-real-estate-investors-understand-ll/" data-wpil-monitor-id="809">Liquid Loans</a> ecosystem. Learn exactly what the dangers are by clicking here.