Product FAQ

What is a Vault?

A Vault is a mechanism for obtaining and maintaining loans. Each Vault is linked to a unique Taproot address, with each address limited to one Vault. Essentially, a Vault is a Taproot script that offers three unlocking methods: 1) joint signature by the borrower and Shell Finance; 2) execution by Shell Finance using a “Secret” from the DLC; 3) expiration of a hash time lock. These methods correspond to different scenarios: the first method is used when the borrower repays the debt and assets are unlocked through joint signatures with Shell Finance. The second method applies when the borrower's collateral reaches the liquidation threshold, and Shell Finance liquidates the assets after the DLC releases the “Secret”. The third method deals with situations where the borrower does not repay the loan within the agreed time, and Shell Finance liquidates the assets through auction.

	User	Shell	DLC	HTLC	Result
Borrow	√	√			1
Reply	√	√			1
Liquidation		√	√		1
	√		√	1

As described in the table above, Shell Finance does not have the authority to use customer assets in any of the four scenarios. If Shell Finance were to act maliciously, it would not only fail to gain any additional benefits but would also suffer negative consequences. Therefore, in this game-theoretic framework, the protocol is designed to always align its actions with the users' interests.

What is Partial Redemption?

Users can make partial redemptions, but each position can only be closed after all debts have been fully repaid. Moreover, since the protocol offers fixed-date loans, repaying part of the debt ahead of schedule will result in a partial refund of the interest.

Who Pays the Gas Fees?

During collateralization and redemption, users must not only transfer collateral or repay loans based on market prices and loan-to-value ratios but also pay Bitcoin network transaction fees (gas fees) to ensure the successful execution of the transaction.

How Can Leverage be Achieved via Shell Finance?

Users are allowed to leverage funds through recursive lending. The process involves borrowing $sUSD using inscription assets, then instantly trading it for $BTC; subsequently, the acquired $BTC is used to purchase or mint more inscription assets as collateral to borrow more $bitUSD. Repeating this process allows users to amplify their financial leverage. It is important to note that although $sUSD is also an inscription asset, Shell Finance does not accept it as collateral for loans. $bitUSD can only be obtained by collateralizing Bitcoin or other inscription assets or trading on secondary markets.

What is LTV?

This represents the ratio of the dollar value of the collateral in the vault to the debt denominated in $bitUSD. As the market price of the collateral assets fluctuates, so does the vault's loan-to-value (LTV) ratio. You can adjust the LTV by modifying the amount of debt or changing the amount of collateral in the vault (either by adding more collateral or repaying part of the debt). For example, if you deposit $ORDI worth 100 into the vault and borrow 50 $sUSD, the LTV of the vault will be 50%; if you borrow 75 $sUSD, the LTV will be 75%.

What is the Insurance Fund?

The Insurance Fund is a risk mitigation mechanism established at the protocol level, designed to provide additional security and protection for protocol participants. The primary sources of Shell Finance's Insurance Fund include:

• Transaction Fees: A portion of the loan transaction fees is allocated to the Insurance Fund.

• Position Auction Revenue: In the event of liquidation, collateral is sold through public Dutch auctions, and any premium obtained from the auction is also contributed to the Insurance Fund.

• Community Donations: Donations and sponsorships from members of the protocol community.

The community manages the Insurance Fund through proposals, and the results of proposal votes determine its use. It is primarily used to counter systemic debt risks in extreme market conditions, ensuring the protocol's stability.