Lending FAQ

What is a Vault?

The Vault serves as the place for acquiring and maintaining loans. Each Vault is linked to a Taproot address, and each address can only be associated with one Vault. The Vault operates as a 2-of-2 multi-signature wallet, with the private keys held jointly by the protocol and the user. Any transaction involving collateral in the Vault requires both the protocol and the user to sign to be executed. Additionally, the Vault is responsible for maintaining records of two account balances: one for collateralized assets and another for the debt denominated in $BTCX. Users can settle all debts at any time to close the Vault.

The table below showcases scenarios involving signatures from both the user and the protocol for the Borrow operation. As the table outlines, only actions co-signed by the user and the protocol are awarded positive points. Any other actions result in negative points, indicating that the protocol cannot gain any additional profit but faces adverse effects. Therefore, in this game-theoretic framework, the protocol's actions will always align with the user's.

Operation	User Signature	Protocol Signature	Outcome	Points
Borrow	Yes	Yes	Success	Positive
Borrow	Yes	No	Failure	Negative
Borrow	No	Yes	Failure	Negative
Repay	Yes	Yes	Success	Positive
Repay	Yes	No	Failure	Negative
Repay	No	Yes	Failure	Negative
Liquidation	Yes	Yes	Success	Positive
Liquidation	Yes	No	Failure	Negative
Liquidation	No	Yes	Failure	Negative

This structure ensures that the user and the protocol cooperate to execute any transaction within the vault. Such a setup prevents unilateral actions that could harm either party, fostering a trustless environment in the lending protocol.

What is the Collateralization Ratio?

This is the ratio between the Bitcoin-denominated collateral value in the Vault and its debt-denominated in $BTCX. As the market price of collateral assets fluctuates, the collateral ratio of the Vault will vary. You can influence the collateral ratio by adjusting the collateral and/or debt amount in the Vault (i.e., increasing more collateral or partially repaying debt). For example, suppose you decide to deposit 100 $ORDI (assuming the current price of $ORDI is 225,000 SATS/ORDI). If you borrow 0.1 $BTCX, the collateral ratio of the Vault will be 225%; if you borrow 0.15 $BTCX, then your collateral ratio will be 150%.

What is the Minimum Collateralization Ratio (MCR)?

The Minimum Collateral Ratio (MCR) is the minimum ratio of debt to collateral that will not trigger liquidation under normal operations. Currently, the system has set it to 150%. Therefore, if you have a debt of 1 $BTCX in your Vault, you need at least 1.5 $BTC worth of inscription assets as collateral to avoid liquidation.