Depositing Collateral and Minting mkUSD
A vault is a loan against a specific collateral type. Each vault is linked to an Ethereum address and each address can have just one vault for a given collateral type. If you are familiar with accounts or CDPs from other platforms, vaults are similar in concept.
Vaults maintain two balances: the collateral balance and the
mkUSDdebt 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.
Vaults can be closed at any time by fully paying off its debt.
Loans issued by the protocol do not have a repayment schedule; debt can be repaid at any time.
The collateral ratio is the ratio between the US Dollar value of the collateral in a vault and its debt in
mkUSD. 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.
For example: Assuming the present value of
$2,000and you opt to deposit
30 rETH, taking out a loan of
mkUSDwould give you a collateral ratio of
However, if the
rETHprice drops to
$1,000the ratio becomes
The Minimum Collateral Ratio (MCR) denotes the foundational debt-to-collateral ratio that, when maintained, prevents liquidation during standard operations, termed as Normal Mode. This parameter, integral to the protocol, is determined by governance for each specific collateral type. For instance, with an MCR set at
120%, a vault holding a debt of
mkUSDrequires a collateral valuation of no less than
$24,000to safeguard against liquidation.
Prisma supports multiple collateral types, therefore users can open multiple vaults, 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.
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
When a vault is opened, a sum of
200 mkUSDis reserved and held by the protocol. This is known as the
Liquidation Reserve, and it serves to cover the gas costs incurred by the liquidator initiating the transaction in the case that a vault gets liquidated.
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.
mkUSDis redeemed, the collateral provided to the redeemer is allocated from the vault(s) 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.