> For the complete documentation index, see [llms.txt](https://docs.vaultedge.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.vaultedge.fi/the-protocol/borrowing/vaults.md).

# Vaults

A Vault is a smart contract used to issue and manage USDVE loans.

### What Are Vaults?

A **Vault** is where you can deposit a supported collateral asset in order to borrow **USDVE**, Vaultedge’s native USD pegged stablecoin. 

Each Vault maintains two balances:

* The deposited **collateral**
* The corresponding **debt** in **USDVE**

You can adjust these balances by adding collateral, repaying debt, or minting more USDVE (as long as your vault remains above the required collateral ratio). As these values change, your **Individual Collateral Ratio (ICR)** also updates.

You can close your Vault at any time by repaying your entire debt. Even during **Recovery Mode**, repayment is allowed. 

However, only actions that increase the **Total Collateral Ratio (TCR)** are permitted while the system is in Recovery Mode.

### Vault Status

Once a Vault is opened, Vaultedge classifies its status as:

* <mark style="color:purple;">**Inactive**</mark><mark style="color:purple;">:</mark> No USDVE has been borrowed yet.
* <mark style="color:green;">**Active**</mark><mark style="color:green;">:</mark> USDVE has been minted and the vault is not subject to liquidation or redemption.
* <mark style="color:yellow;">**Redeemed**</mark><mark style="color:yellow;">:</mark> The vault was partially repaid by a third party due to low ICR under redemption conditions.
* <mark style="color:red;">**Liquidated**</mark><mark style="color:red;">:</mark> The vault was forcibly closed due to falling below the **Minimum Liquidation Ratio (MLR)** or **Adjusted ICR** thresholds.

### Collateral Ratios

Understanding Vaultedge’s safety metrics is essential for managing risk:

#### Collateral Ratio (CR)

The **Collateral Ratio** represents the ratio of the total collateral value to the total borrowed amount.

$$
Collateral Ratio = \left( \frac{CV}{BV} \right)
$$

A higher CR indicates a more secure position for the protocol.

#### Loan to Value Ratio (LTV)

The **LTV Ratio** is the inverse of CR and shows the percentage of debt relative to the collateral value:

$$
LTV = \left( \frac{BV}{CV} \right)
$$

A lower LTV means less risk of liquidation.

#### Individual Collateral Ratio (ICR)

The **ICR** reflects your personal Vault's safety, measuring how well your own collateral covers your debt:

$$
ICR = \left( \frac{\text{Collateral Value}}{\text{Debt}} \right)
$$

Vaults must maintain an ICR above the **Minimum Collateral Ratio (MCR)** to remain eligible for borrowing, and above the **Critical Collateral Ratio (MLR)** to avoid liquidation.

### Why Use Vaultedge?

#### 1. Capital Efficiency with Isolated Collateral

Vaultedge enables **borrowing with an MCR as low as 100.5%**, giving users more liquidity for less collateral. Yield bearing assets like LSTs, LP tokens, and veTokens continue earning while used as collateral.

For example, users can borrow USDVE against Liquid Staked ETH or governance locked assets without selling them.

Users may also **leverage their collateral** by using borrowed USDVE to buy more of the same asset, then depositing it again at their own risk.

#### 2. Vault Specific Risk Parameters

Each asset market has its own isolated risk profile. You can only borrow against **one collateral type per Vault**. To borrow against multiple assets, you need to open multiple Vaults.

Parameters per collateral ([read more](broken://pages/2gEHlfCSj5SQiUprbGiR))

#### 3.  0% Interest

Under normal conditions, Vaultedge charges no recurring interest on borrowed USDVE. Instead, a one-time issuance fee is applied based on the risk profile and system backing percent of the asset. During periods of high system utilization or market stress, a dynamic borrowing rate may temporarily apply to manage demand and maintain stability. This rate returns to 0% once conditions normalize.

> This fee model provides a more predictable borrowing experience compared to protocols with variable APRs

#### 4. Liquidation Reserve

Each time you borrow, **1 USDVE** is reserved to cover gas costs if your Vault is ever liquidated. This amount is fully refunded when you repay your debt and close the Vault.

The liquidation reserve counts as part of your debt and slightly increases your ICR requirement.

#### 5. Recovery Mode and System Safety

Specific markets can enter **Recovery Mode** when a collateral type’s **Total Collateral Ratio (TCR)** drops below its **Critical Collateral Ratio (CCR)**.

* **Normal Mode**: Vaults are only liquidated if **ICR** < **MCR**
* **Recovery Mode**: Vaults can be liquidated if:
  * **ICR < CCR**, or
  * &#x20;**ICR < TCR**

In Recovery Mode, only actions that increase TCR are allowed. This includes repaying debt or adding collateral.

The TCR can be monitored on the Dashboard under “System Collateral Ratio.”

#### 6. Stable Peg and Redemptions

To maintain a stable peg for USDVE, Vaultedge supports a **Redemptions** and **discounted redemption mechanism**. Users can redeem USDVE directly against undervalued collateral, improving peg stability while redistributing risk to unsafe Vaults.