Terminology

Vault:

A user may deposit a basket of assets and open a Vault. It is used as backing to mint and withdraw veUSD.

Debt:

The amount of veUSD you have minted against the collateral in your vault.

Deposit Fee:

This is a one-time fee when collateral is deposited into Vaultedge. The fee amount varies depending on veUSD borrowed, deposited collateral type and its backing percentage. As backing percentage increases and if the collateral is higher risk, the deposit fee is higher.

Soft liquidation Fee:

There is a one-time 3% fee paid on soft liquidations.

Safety Ratio:

Used as a weighting mechanism to give lower risk (less volatile, more liquid) collateral a higher weight in the system compared to higher risk collateral. A high safety ratio means more debt can be issued against the same dollar amount of the asset.

Risk-Adjusted Value (RAV):

RAV value is a way for the system to weight collateral risk. For some dollar value of collateral, safer collateral has a higher RAV relative to risky collateral. The risk-adjusted value depends on the collateral's safety ratio. Safety ratios must be between 0 and 1.1. Stable collateral (i.e. USDC, USDT, DAI) can have a safety ratio between 1 and 1.1, but all other collateral has a safety ratio between 0 and 1.

$${Risk Adjusted Value} = \text{Safety ratio} \times \text{Token amount} \times \text{Token Price in USD}$$

Stability Risk-Adjusted Value (sRAV):

sRAV value is a way for the system to weight collateral risk while also accounting for the benefits of utilizing stablecoin collateral when the system is in Recovery mode. The calculation of sRAV is exactly the same for non-stable collateral. But the sRAV of stablecoin collaterals utilizes a safety ratio of 1.6 rather than the actual safety ratio.

$${Stability- RiskAdjusted Value} = 1.6 \times \text{Token amount} \times \text{Token Price in USD}$$

For Non-Stable Collaterals:

For example, I have 1000 Lynx at a price of $2.75 with a safety ratio of 0.8:

$$Stability Risk-Adjusted Value = 0.8 * 1000 * 2.75 = 2200 RAV$$

For Stablecoin Collaterals:

For example, I have 1000 DAI at a price of $1.03:

$${Stability Risk-Adjusted Value} = 1.6 \times 1000 \times 1.03 = 1648 \, \text{sRAV}$$

Current Stablecoin Collaterals (ones that use this 1.6 ratio) are: USDC, USDT, DAI

Individual Collateral Ratio (ICR):

Ratio of the Risk-Adjusted Value of a borrower's vault collateral compared to their debt.

$${Individual Collateral Ratio} = \frac{\text{RAV of vault's Collateral}}{\text{Debt in vault}}$$

Vaults are eligible for liquidation if their individual collateral ratio drops below 110%.

For example, I have 1000 Lynx at a price of $2.75 with a safety ratio of 0.8. This has a RAV of 2200. I have taken out 2000 veUSD in debt:${Individual Collateral Ratio} = \frac{2200 \, \text{RAV}}{2000 \, \text{veUSD}} = 110\%$

$${Individual Collateral Ratio} = \frac{2200 \, \text{RAV}}{2000 \, \text{veUSD}} = 110\%$$

Adjusted Individual Collateral Ratio (AICR):

Ratio of the Stability Risk-Adjusted Value (sRAV) of a borrower's vault collateral compared to their debt. This is utilized for determining whether a vault is eligible for liquidation during Recovery Mode.

$${Adjusted Individual Collateral Ratio} = \frac{s\text{RAV of vault's Collateral}}{\text{Debt in vault}}$$

By using sRAV, even all the vaults are low collateral stablecoin vaults, the system will still not hit recovery mode.

Total Collateral Ratio:

The TCR is the System's Risk Adjusted Value (RAV) over the total veUSD debt.

When TCR is below 150% the system enters recovery mode.

$$TCR = \frac{\sum_{i=1}^{n} (CollateralValue_i \times {SafetyRatio_i})}{TotalVeUSDDebt}$$

Critical Collateral Ratio:

The CCR represents the threshold below which the protocol enters recovery mode.

Minimum Collateral Ratio:

The MCR is the minimum ratio Vaults must maintain to avoid liquidation.

Health Factor (HF):

The HF (Health Factor) is a key metric that reflects the health of each vault by considering the ICR (Individual Collateral Ratio) and the liquidation ratio. A higher HF indicates a safer position.

There are two important levels to be aware of:

Health Factor: =< 1.37 [the vault can be soft liquidated by other users]

Health Factor: =< 1 [the vault gets liquidated by the Stability Pool]

Liquidation reserve:

When you open a Vault and draw a loan, 20 veUSD are set aside as a way to compensate gas costs for the transaction sender in the event your Vault being liquidated. The Liquidation Reserve is fully refundable if your Vault is not liquidated, and is given back to you when you close your vault by repaying your debt. The Liquidation Reserve counts as debt and is taken into account for the calculation of a vault collateral ratio, slightly increasing the actual collateral requirements.

Backing Percent:

How much of the protocol is backed by that particular asset. If the system has RAV of $1,000,000 and it has $10,000 RAV of Lynx, then it has 1% backing percent of Lynx.

Recovery Mode:

The system goes into recovery mode when the Total Collateral Ratio of the system is under 150%. The system blocks borrower transactions that would further decrease the TCR. This means that borrowers may not withdraw collateral or borrow veUSD during recovery mode. Read more.

Other Useful Definitions

Stablecoin - Stablecoins are cryptocurrencies that are designed to be stable in price. Often times their market values will be pegged to some external reference such as the US dollar.

Peg - When something is pegged, it means that it is fixed to an amount at a particular level. For example, veUSD is pegged to 1 USD and should remain fixed to the price of 1 USD.

Annual percentage rate (APR) - APR is expressed as a percentage that represents the monetary value or reward that investors are expected to earn. This includes any fees or additional cots associated, but does not take compounding into account.

Staking - Staking is the process of locking up tokens in exchange for rewards for securing a protocol. By staking your assets, you support the blockchain network and help confirm transactions.

Arbitrage - Arbitrage is the process of purchasing and selling the same asset in different markets in order to profit from the difference in the listed prices. By profiting through exploiting market inefficiencies, it inadvertently resolves the price in different markets.

High-risk collateral - High-risk collateral refers to assets with high price volatility or low liquidity. These collateral types will have a lower safety ratio assigned to them because liquidation risk are higher due to fluctuations in price.