Collateral ratio

What is the collateral ratio?

This is the ratio between the Dollar value of the collateral in your Trove and its debt in USDE. The collateral ratio of your Trove will fluctuate over time as the price of collateral changes. You can influence the ratio by adjusting your Trove’s collateral and/or debt — i.e. adding more collateral or paying off some of your debt.

For example: Let’s say the current price of ETH is $1,000 and the current price of stETH is 1 and stand you decide to deposit 10 ETHand 10 stETH. If you borrow 10,000 USDE, then the collateral ratio for your Trove are as follows:

Collateral Value: 10ETH * $1000 + 10stETH * 1 * $1000

Collateral ratio: Collateral Value / 10000USDE * 100% = 200%

When do I need to pay my loan back?

Loans issued by the protocol do not have a repayment schedule. You can leave your Trove open and repay your debt any time, as long as you maintain a collateral ratio of at least 110%.

What is the minimum collateral ratio (MCR) and the "recommended" collateral ratio?

The minimum collateral ratio (or MCR for short) is the lowest ratio of debt to collateral that will not trigger a liquidation under normal operations (aka Normal Mode). This is a protocol parameter that is set to 110%. So if your Trove has a debt 10,000 USDE, you would need at least $11,000 worth of collateral posted as collateral to avoid being liquidated.

To avoid liquidation during Recovery Mode, it is recommended to keep ratio comfortably above 130% (e.g. 180% or better 220%).

How can you offer a collateral ratio as low as 110%?

By making liquidation immediate and more efficient, ERD requires less collateral to achieve the same level of security as protocols that rely on lengthy auction mechanisms to sell liquidated collateral.