11 times, increasing their exposure to price changes. This is possible because LUSD can be borrowed against Ether, sold on the open market to purchase more Ether — rinse and repeat.*
110%. A minimum debt of
2,000 LUSDis required.
0.5%under normal operation. The fee is
0%during Recovery Mode. A
200 LUSDLiquidation Reserve charge will be applied as well, but returned to you upon repayment of debt.
baseRate. The fee rate is confined to a range between
5%and is multiplied by the amount of liquidity drawn by the borrower.
0.5%and the borrower wants to receive
4,000 LUSDto their wallet. Being charged a borrowing fee of
20.00 LUSD, the borrower will incur a debt of
4,220 LUSDafter the Liquidation Reserve and issuance fee are added.
$3,000and you decide to deposit
10 ETH. If you borrow
10,000 LUSD, then the collateral ratio for your Trove would be
25,000 LUSDthat would put your ratio at
110%. So if your Trove has a debt
10,000 LUSD, you would need at least
$11,000worth of Ether posted as collateral to avoid being liquidated.
9.09% (= 100% * 10 / 110)of your collateral’s Dollar value.
200 LUSDis set aside as a way to compensate gas costs for the transaction sender in the event your Trove being liquidated. The Liquidation Reserve is fully refundable if your Trove is not liquidated, and is given back to you when you close your Trove by repaying your debt. The Liquidation Reserve counts as debt and is taken into account for the calculation of a Trove's collateral ratio, slightly increasing the actual collateral requirements.
110%). If at the time of redemption you have the Trove with the lowest ratio, you will give up some of your collateral, but your debt will be reduced accordingly.
2 ETHcollateralized and a debt of
3,200 LUSD. The current price of ETH is
$2,000. This puts your collateral ratio (CR) at
125% (= 100% * (2 * 2,000) / 3,200). Let’s imagine this is the lowest CR in the Liquity system and look at two examples of a partial redemption and a full redemption:
0.6 ETHand thus repays
1,200 LUSDof your debt, reducing it from
2,000 LUSD. In return,
$1,200, is transferred from your Trove to the redeemer. Your collateral goes down from
2 to 1.4 ETH, while your collateral ratio goes up from
140% (= 100% * (1.4 * 2,000) / 2,000).
3 ETH. Given that the redeemed amount is larger than your debt minus
200 LUSD(set aside as a Liquidation Reserve), your debt of
3,200 LUSDis entirely cleared and your collateral gets reduced by
$3,000of ETH, leaving you with a collateral of
0.5 ETH (= 2 - 3,000 / 2,000).
1 LUSD = $1), the maximum achievable leverage ratio is
11x. It is given by the formula: