Ethereum Reserve Dollar
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Borrowing

How can I borrow with ERD?

To borrow, you must open a Trove and deposit a certain amount of collateral. Then, you can get a certain amount of USDE, provided that the collateral ratio is not less than 110%. A minimum debt of 2,000 USDE is required.

What is a Trove?

A Trove is where you access and maintain your loan. Each Trove is linked to an Ethereum address, and each address can only have one Trove. If you are familiar with vaults or CDPs on other platforms, Troves are conceptually similar to them.
A Trove records two account balances: one for assets (such as ETH, stETH, WBTC, UNI, LINK) as collateral, and another for debt denominated in USDE. You can change each amount by adding collateral or repaying the debt. When you make these balance changes, your Trove's collateral ratio will change accordingly.
You can repay your debt at any time to close your Trove.

Do I need to pay fees as a borrower?

You need to pay two parts of fees, the one-time borrowing fee and the flexible borrowing interest.

One-time borrowing fee

Every time you withdraw USDE from your Trove, ERD deducts a one-time borrowing fee from the withdrawn amount and adds it to your debt.
  • Please note that the borrowing cost is variable (determined by an algorithm). Under normal operation, the minimum value of the borrowing fee is 0.25%. The fee is 0.1% during Recovery Mode.
  • In addition, we charge borrowing interest based on a variable rate according to your debt status and the TCR of the system.
  • A 200 USDE Liquidation Reserve charge will be applied as well but returned to you upon repayment of debt.
Another factor to consider is the price of USDE at the time of repayment. If you want to repay your loan, and the trading price of USDE on the market is $1.02, and you need to buy it, you will incur a 2% "fee". You can avoid this situation by providing borrowed funds at any time or waiting for USDE to recover its peg.

Flexible Borrowing interest

To ensure the long-term stable development of the ERD protocol, we have decided to introduce the concept of variable interest rates for the borrowing. Currently, the borrowing interest rate is only related to TCR and OCR, but please note that it is actually very low, so you don't need to worry too much. You can check the interest rate model for specific rate strategies.
When you choose to close your Trove, the protocol will check whether you have cleared your debt. If there is any unpaid interest, it will be calculated and repaid together.
Since we will have flexible borrowing interest rates setting. Therefore, users actually have a demand to buy USDE in the market to repay interest. This will naturally create an upward decoupling tendency for USDE. So, we have added the following settings:
  1. 1.
    Whenever a user performs a new operation in Trove, the contract will automatically collect previously accrued but unpaid interest.
  2. 2.
    We will periodically withdraw the protocol revenue from the treasury and sell it on the market to increase the market's total supply.

How can I take advantage of leverage?

You can sell the borrowed USDE on the market for collateral and use the latter to top up the collateral of your Trove. That allows you to draw and sell more USDE, and by repeating the process you can reach the desired leverage ratio.
Assuming perfect price stability (1 USDE = $1), the maximum achievable leverage ratio is 11x. It is given by the formula:
maximum leverage ratio =
MCR(MCR100%)\frac{MCR}{(MCR - 100\%)}
where MCR is the Minimum Collateral Ratio.

Why did the collateral and debt of my Trove increase without my intervention?

If a Trove is liquidated and the Stability Pool is empty (or cleared due to liquidation), as part of the redistribution process, each borrower will receive a portion of the liquidated collateral and debt.