Borrowing & Liquidations
The institutional-grade approach to borrowing
Last updated
The institutional-grade approach to borrowing
Last updated
BitVault employs a capital efficient model for whitelisted borrowers to borrow with dynamic, user-set interest rates using Troves. Liquidations occur when a Trove's loan-to-value (LTV) exceeds predefined thresholds. The system employs a tiered approach to handle liquidations, prioritizing efficiency and protocol stability while minimizing borrower losses.
In this section we outline institutional borrowing and liquidation features for BitVault:
User-set interest rates
Troves
Stability Pool
Collateral Types
BitVault introduces a novel approach to borrowing with its dynamic, user-set interest rates in a permissioned environment. Unlike traditional protocols where rates are determined by governance or algorithms, BitVault allows whitelisted institutions to:
Choose their own borrowing rates
Adjust these rates according to market conditions
Create a personalized borrowing experience based on individual risk tolerance
Whitelisted users can adjust their interest rates at any time, with some conditions:
A fee equivalent to 7 days of average interest is charged when opening a loan
The same fee applies to rate adjustments made within 7 days of the previous adjustment
This prevents redemption evasion strategies
When setting rates, borrowers should consider:
Redemption risk (lower rates increase risk)
Position management frequency
Market conditions and rate distribution
Past redemption activity
In BitVault, a Trove represents a collateralized debt position (CDP). Each Trove allows you to manage a loan, adjusting collateral and debt values as needed, as well as setting your own interest rate. Users can:
Manage multiple Troves under a single address
Adjust collateral and debt values
Set personalized interest rates
Users can:
Open multiple Troves for the same or different collateral types
Manage different risk profiles across Troves
Each Trove is represented as a separate NFT (non-transferable)
BitVault offers built-in automation for "looping" - borrowing bvUSD against deposited collateral to purchase more collateral, increasing exposure to the underlying asset.
A Stability Pool is a crucial component of the protocol that serves as the first line of defense in maintaining system solvency. It acts as a source of liquidity to repay debt from liquidated Troves, ensuring that the total bvUSD supply remains fully backed by collateral.
Key aspects of the Stability Pool include:
Functionality: When a Trove is liquidated, an amount of bvUSD equal to the remaining debt is burned from the Stability Pool's balance to repay the debt. In exchange, the entire collateral from the liquidated Trove is transferred to the Stability Pool.
Stability Providers: Whitelisted institutions who deposit bvUSD into the Stability Pool are called Stability Providers. They play a crucial role in supporting the system's health.
Incentives: Stability Providers are incentivized in 3 ways:
Pro-rata share of liquidated collateral
VCRAFT
bvUSD
Risk and Reward: Over time, Stability Providers may lose a portion of their bvUSD deposits but gain a share of liquidated collateral. Since Troves are often liquidated at just below 120% collateral ratios, Stability Providers are expected to receive a greater dollar value of collateral compared to the debt they pay off.
System Benefits: The Stability Pool enables quick liquidations, allowing Liquity to maintain a low minimum collateral ratio of 120%, which improves capital efficiency for borrowers.
By participating in the Stability Pool, whitelisted LPs contribute to the overall stability of the BitVault protocol while potentially benefiting from liquidation gains and token rewards.
The implementation of multiple Stability Pools serves two primary purposes:
Creating distinct borrowing markets for different collateral assets, each with its own market-determined interest rates. The Stability Pool backing is used to dynamically allocate redemptions across available collateral types.
Minimizing risk exposure for depositors by providing them with control over which collateral assets they want exposure to in liquidation scenarios. This compartmentalization allows users to manage their risk profiles more effectively when depositing to respective Stability Pools (Earn).
BitVault initially utilizes Bitcoin derivatives as collateral, starting with 2,000 BTC through Matrixport's nBTC. The system supports multiple collateral types with isolated risk management and dynamic loan-to-value ratios.
Minimum debt: 100,000 bvUSD for borrowing
No mandatory repayment schedule
No lockup period (except during high market LTV periods)
BitVault employs an over-collateralized system with specific LTV parameters:
Initial minting at 40% LTV
Maximum 75% LTV thereafter
Users should determine their own risk tolerance when setting LTV. The platform provides preset options as guidance, but these are illustrative only and do not represent definitive safety thresholds.
If the Stability Pool is depleted, the system offers two fallback options:
Just-in-time (JIT) liquidation: Liquidators provide bvUSD in exchange for 105% of its value in collateral
Redistribution: The Trove's debt and collateral are distributed proportionally among other borrowers in the same collateral market
