Borrowing

Choosing a collateral and creating a Trove

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Use Cases

Fluid Protocol allows users the ability to unlock liquidity from their collateral to use as they please. Instead of selling your collateral to participate in DeFi or other activities, you can borrow USDF and retain your collateral when you repay the loan. As long as you maintain your Collateral Ratio above 135%, you can keep your loan as long as you would like. Fluid Protocol supplies liquidity without charging borrowers interest or recurring fees.

Multi-Collateral

In Fluid Protocol, there is only one redemption mechanism and one stability pool across the user's collateral types. This is practical because of the similarity between collateral types and the small number of collateral types. However, collateral types have their own separate price feeds.

Accepted collateral types include: FUEL, ETH, wstETH, EzETH, weETH, RsETH

Borrowing Fee

Fluid protocol uses a fixed borrowing and redemption rate. Similar to the decision to not implement recovery mode, we found that this simplifies the codebase without significantly changing anything for average users. The borrowing fee is added to the debt of the Trove. The protocol charges a one time Borrowing Fee for newly drawn liquidity to support a USD based peg. The fee rate is fixed at 0.5% and is multiplied by the amount of liquidity drawn by the borrower.

The redemption fee is charged when a user redeems USDF for underlying collateral. The redemption fee is fixed at 1%.

For example: The borrowing fee stands at 0.5% and the borrower wants to receive 4,000 USDF to their wallet. Being charged a borrowing fee of 20.00 USDF, the borrower will incur a debt of4,020 USDF after the issuance fee is added.

Troves

To manage your troves go here

After locking up collateral in a smart contract and creating an individual position called a “Trove”, the user can get instant liquidity in a permissionless manner by minting USDF. A Trove is where you take out and maintain your loan. Each Trove is linked to a user's address and each address can hold just one Trove. If you are familiar with Vaults or CDPs (Collateralized Debt Positions) from other platforms, Troves are similar in concept.

Troves maintain two balances: one is an asset acting as collateral and the other is a debt denominated in USDF. You can change the amount of each by adding collateral or repaying debt. As you make these balance changes, your Trove’s collateral ratio changes accordingly.

You can close your Trove at any time by fully paying off your debt.

Collateral Ratio

The collateral ratio of your trove is the ratio between the Dollar value of the collateral in your Trove and it's debt in USDF. The collateral ratio of your Trove will fluctuate over time as the price of collateral changes. You can modify the ratio by adjusting your Trove’s collateral and/or debt — i.e. adding more collateral or paying off some of your debt. Similar to Liquity, since the borrower’s debt is denominated in USDF, the current value of collateral is expressed in USD.

For example: Let’s say the current price of your collateral is $100 and you decide to deposit 40 units. If you borrow 2,000 USDF, then the collateral ratio for your Trove would be 200%.

The minimum collateral ratio (or MCR for short) is the lowest ratio of debt to collateral that will not trigger a liquidation. This is a protocol parameter that is set to 135%. Thus, if your Trove has a debt of 10,000 USDF, you would need at least $13,500 worth of posted collateral to avoid being liquidated.

To avoid liquidation, it is recommended to keep the collateral ratio comfortably above 135% (e.g. 200% or more250%). It's important to note, that redemptions are suspended if the Total Collateral Ratio (TCR) is below 135%. This can prevent the system from experiencing situations similar to bank runs.