Troves and Collateral
Last updated
Last updated
What are Troves?
A Trove is where you can deposit collateral against which you can borrow $CASH and maintain your loan. Each Trove is linked to an address, and each address can have just one Trove per collateral type.
If you are familiar with Vaults or collateralized debt positions (CDPs) from other platforms, Troves is a similar concept. Troves maintain two balances: one is an asset acting as collateral, and the other is a debt denominated in $CASH. You can change the amount of each by adding collateral or repaying debt. As you make these balance changes, your Trove's loan-to-value (LTV) changes accordingly.
You can close your Trove at any time by fully paying off your debt.
What is Trove Status?
In the Solido Protocol, your Trove status provides an overview of your position and helps you understand how your Trove is performing. The different statuses are as follows:
Inactive: This status is displayed when no $CASH has been borrowed against your Trove. It means your Trove is not actively utilizing the protocol’s services.
Active: This status is shown when you have borrowed $CASH from your Trove, and it has neither been liquidated nor redeemed. The Trove is in use, and the debt is within acceptable limits.
Redeemed: This status appears when your Trove has been redeemed due to a risky loan-to-value (LTV) ratio. In such cases, your position is partially closed to reduce risk. You can find more details about the redemption process.
Liquidated: This status is shown when your Trove has been liquidated for exceeding the maximum allowed LTV. Liquidation occurs to protect the system's stability. To learn more about how liquidations work, refer to the relevant information.
Liquidation Price: If the market price of the collateral falls below the liquidation price, your Trove may be liquidated to cover the outstanding debt.
These statuses provide you with clear insights into the health of your Trove, helping you manage your collateral and borrowed funds effectively.
What do you mean by collateral?
Collateral is any asset that a borrower must provide to take out a loan. Multiple collaterals are used on Solido.
This collateral ensures any loans issued in $CASH by the protocol are fully redeemable against the cryptocurrency asset used as the collateral. This ensures the protocol’s stability and solvency.
How can I borrow with Solido?
To borrow, you must open a and deposit a certain amount of collateral into it. You can then draw $CASH up to the maximum LTV allowed for the collateral.
Do I have to pay fees as a borrower?
Every time you draw $CASH from your Trove, a one-off borrowing fee is charged on the drawn amount and added to your debt.
Also, a Liquidation Reserve will be applied that will be returned to you upon repayment of debt.
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 at any time, as long as you maintain a collateral ratio.
How can the protocol offer interest-free borrowing?
What is the Liquidation Reserve?
The Liquidation Reserve counts as debt and is taken into account for the calculation of a Troves collateral ratio, slightly increasing the actual collateral requirements.
Do I lose the Liquidation Reserve if my Trove is liquidated?
Yes, if your Trove is liquidated, you will lose that $CASH as a gas reserve.
Are there notifications to inform the user about collateralization levels before borrowing?
Yes. Information will be displayed on what the minimum collateralization level is and how to effectively reduce the risk of liquidation.
The system also displays the Total Collateral Level at any point in time.
Your collateral is safe from liquidation as long as you maintain your Individual collateral level (ICR).
Collateral Ratio and Loan-to-Value Ratio
The terms Collateral Ratio and Loan-to-Value (LTV) ratio describe the relationships between the collateral, the borrowed amount, and its value. Understanding the distinction between these two concepts is crucial for users who want to maintain a healthy position in the protocol.
Collateral Ratio:
The Collateral Ratio is the proportion of the collateral's total value to the borrowed amount. It is expressed as a percentage and indicates the degree to which the collateral supports the borrowed amount.
CR = (CV/BV )⋅100
A higher Collateral Ratio means that the borrower has more collateral relative to the borrowed amount, which reduces the risk for the protocol.
Loan-to-Value (LTV) Ratio:
The LTV ratio, on the other hand, is the proportion of the borrowed amount's total value to the collateral's total value. It is expressed as a percentage and indicates the degree to which the borrowed amount is covered by the collateral.
LTV = (BV/CV )⋅100
A lower LTV ratio implies a safer position for the borrower, as it means that they have more collateral relative to the borrowed amount, reducing the risk of liquidation. In the Solido Protocol, it is essential to maintain a healthy LTV ratio to avoid liquidations and ensure a smooth borrowing experience.
For simplicity and consistency, this documentation will always refer to LTV.
The protocol charges fixed one-time borrowing and , providing a transparent and straightforward fee structure. Unlike other systems that use variable interest rates, which can impact borrowers without them realizing it upfront, this approach eliminates uncertainty. With governance managing these fees directly, there’s no third-party involvement or counterparty risk, ensuring a fully decentralized and user-friendly experience.
When you open a Trove and draw a loan, a fixed amount is set aside as a way to compensate gas costs for the transaction sender in the event your Trove is liquidated. The Liquidation Reserve is fully refundable if your Trove is not , and is credited to you while you close your Trove by repaying your debt.