Depositing and Borrowing

Minting fixUSD

Users open CDPs and mint fixUSD by depositing a fixed yield collaterals. The protocol requires a minimum debt, liquidation reserve and maintaining a collateral ratio of at least 120%.

CDP

CDP is a loan against a specific collateral type. Each CDP is linked to a user address and each address can have just one vault for a given collateral type. It is the similar concept of CDPs used on other DeFi platforms.

CDPs maintain two balances: the collateral balance and the fixUSD debt balance. Users can manage these balances by adding or removing collateral, or increasing or repaying debt. A vault's collateral ratio changes as these balances are adjusted.

CDPs can be closed at any time by fully paying off its debt.

Collateral Ratio

The collateral ratio is the ratio between the US Dollar value of the collateral in a vault and its debt in fixUSD. The collateral ratio of a vault will fluctuate as the price of the collateral changes. Users can adjust the ratio by adding or removing collateral, or increasing or repaying debt.

Minimum collateral ratio (MCR)

The Minimum Collateral Ratio (MCR) denotes the foundational debt-to-collateral ratio that, when maintained, prevents liquidation during standard operations. This parameter, integral to the protocol, is determined by governance for each specific collateral type.

Multiple Collateral Types

NoFrame supports multiple collateral types, therefore users can open multiple CDPs, one for each supported collateral.

It is important to note the following points:

1. Collateral types are segregated, therefore each collateral's Total Collateral Ratio (TCR) is calculated independently.

2. Collateral types may have different protocol parameters so at any given time using each collateral might be cheaper or more expensive than the others (see Fees).

3. NoFrame emissions might be different for each collateral type.

Vault liquidations

During liquidations, a vault's collateral is lost as it is used to pay off the account's debt. The vault owner will no longer be able to retrieve the collateral by repaying debt. A liquidation thus results in a net loss of 16.67% (= 100% * 20 / 120) of the collateral’s usd value.

Liquidation Reserve

When a vault is opened the liquidation reserve is held by the protocol. It serves to cover the gas costs incurred by the liquidator initiating the transaction in the case that a vault gets liquidated.

The Liquidation Reserve is completely refundable. This reserve is returned when a vault is closed by paying off the debt or if there is a redemption against it.

It's crucial to note that the Liquidation Reserve is considered part of a vault's debt, and therefore, it’s factored into the computation of a vault's collateral ratio and interest payment. This slightly increases the actual requirements for collateral.

Redemptions

When fixUSD is redeemed, the collateral provided to the redeemer is allocated from CDP with the lowest collateral ratio (even if it is above 120%) for that collateral type. If at the time of redemption you have the vault with the lowest ratio, you will give up some of your collateral, but your debt will be reduced accordingly.

For more details see Redemptions.