Borrower Activities

Users have the ability to acquire liquidity in a completely permissionless way by depositing BTC into a Vault. Once deposited, the BTC is locked in the Vault, and its owner can withdraw up to 90.91% of its current dollar value as BPD stablecoins. The Vault is required to maintain a Minimum Collateral Ratio (MCR) of 110%, which is calculated as the ratio of the current dollar value of the collateral to the withdrawn liquidity. Borrowers can borrow more liquidity or repay their loan within the limits of the MCR at any time. They can also retrieve their collateral within the same limits. Additionally, it is possible to add more collateral to the Vault as needed.

In order to open a Vault, a user is required to have a minimum debt of 2,000 BPD. Once the vault is opened, the debt is not allowed to go below 2,000 BPD unless the loan is fully repaid and the Vault is closed.

Liquidation Reserve

When a borrower takes out a loan and creates a new Vault, the protocol reserves and withholds 200 BPD as compensation for gas costs if the Vault is ever liquidated. The 200 BPD is included in the Vault’s debt, which affects its collateral ratio. Upon closing the Vault, the Liquidation Reserve is refunded, which cancels the corresponding 200 BPD debt. This means that borrowers will have to pay 200 BPD less in order to fully pay off the debt in their Vault.

Borrowing Fee

To borrow BPD the protocol imposes a one-time Borrowing Fee, which is added to the Vault's debt. The Borrowing fee is calculated as a base_rate plus 0.5% multiplied by the amount of liquidity drawn by the borrower. The minimum Borrowing Fee is set at 0.5%, while the maximum is capped at 5%.

Example:
The borrower opens a new Vault by depositing 1 BTC and draws 10,000 BPD. At the time the vault is opened the base_rate is at 0.25%, the Borrowing fee will thus be 0.75% in this example. The vault is subject to a 200 BPD Liquidation Reserve and with the 0.75% Borrowing Fee charged on the 10,000 drawn amount the total debt for the Vault will be 10,275 BPD (10,000 + 200 + 75). To close the Vault and retrieve the 1 BTC, since the Liquidation Reserve is refunded, the borrower needs to repay 10,075 BPD.

Restrictions due to Recovery Mode

Standard borrower features are restricted in several situations when the system is in Recovery Mode.

In order to prevent liquidation due to fluctuations in BTC price, it is strongly advised to maintain a collateral ratio for your Vault that is well above the Minimum Collateral Ratio (MCR) of 110%. Even Vault’s with higher collateral ratios, greater than 110% and less than 150% may be affected by liquidations during Recovery Mode. Thus it is recommended for cautious borrowers to adequately collateralize their Vaults to avoid being among the least collateralized Vaults when the system is close to entering Recovery Mode. Additionally, keeping a relatively high collateral ratio also decreases the risk of being impacted by a redemption, see the Redemption section of this documentation.