Deposit Collateral and Mint bitUSD
Last updated
Last updated
Bit Protocol's protocol for minting its stablecoin, bitUSD, involves a process similar to that of other Collateralized Debt Position (CDP) stablecoin protocols, adapted to its unique ecosystem. Taking inspiration from previous innovations in the space, this section outlines the steps and mechanisms for depositing collateral and minting bitUSD on Bit Protocol.
Opening a Vault: Users begin by opening a vault on the Bit Protocol platform. A vault is essentially a smart contract that holds the user’s collateral – initially ROSE – and tracks the corresponding debt in bitUSD.
Vault Characteristics: Each vault is tied to a user's wallet address, and each address can maintain one vault per collateral type. Within the vault, two balances are maintained – the collateral balance (in ROSE or wstROSE) and the bitUSD debt balance.
Vault Collateral Ratio: The collateral ratio is a critical metric. It is the ratio of the USD value of the collateral to the bitUSD debt. This ratio fluctuates with the market value of the collateral and can be adjusted by the user by adding or removing collateral or changing the debt amount.
Default Minimum Collateral Ratio: A default minimum collateral ratio of 150% is set for bitUSD positions. There is the option to adjust the minimum collateral ration via governance in order to adapt to evolving market conditions and the needs of the protocol and its users.
Collateral Deposit and bitUSD Issuance: To mint bitUSD, users deposit ROSE or other collaterals available into their vault. The amount of bitUSD they can mint depends on the value of the deposited ROSE and the required collateralization ratio.
Minimum Debt and Collateralization Ratio: A minimum debt amount is set to open a vault, ensuring that the system remains economically viable. The minimum collateralization ratio is 150%, and ensures over-collateralization, safeguarding the system’s stability.
Borrowing Fees: Minting bitUSD incurs a minting fee and a borrowing interest fee, calculated as percentages of the minted bitUSD amount. These fees are added to the user’s debt in the vault. Fees are set by the protocol, adjusting dynamically to optimize the protocol and maintain peg stability. For ROSE and wstROSE, minting start from 0,5 % and go up to 5 % maximum, while the interest rate starts at 0,5 % APR and goes up all the way to a 10 % APR maximum.
Loan Duration: The protocol does not enforce a repayment schedule. The user can maintain the vault as long as the collateralization ratio is above the minimum requirement. It is the responsibility of the user to monitor and manage their own debt positions.
Adjustments: Users can alter their vault's balances by adding more collateral to enhance the collateral ratio or by repaying a portion of their bitUSD debt.
Maintaining a Safe Collateral Ration: To avoid the risk of liquidations, maintaining a minimum collateral ratio of 180% is recommended.
Closing the Vault: A vault can be closed by the user at any time, provided they fully repay their bitUSD debt. Upon closing, the collateral minus any outstanding fees is returned to the user.