Troves and Collateral
What are Troves?
A Trove is where you can deposit collateral against which you can borrow ORE and maintain your loan. Each Trove is linked to an address, and each address can have just one Trove per collateral type. If you are familiar with Vaults or CDPs from other platforms, Troves are a similar concept.
Troves maintain two balances: one is an asset acting as collateral, and the other is a debt denominated in ORE. You can change the amount of each by adding collateral or repaying debt. As you make these balance changes, your Trove's LTV changes accordingly.
You can close your Trove at any time (excluding the times when the system is in Recovery Mode) by fully paying off your debt. You will find more information about Recovery Mode in the System Status and Price Volatility page.
Trove Status
After you open a Trove, Earth Protocol displays your "Trove Status."
Inactive is displayed when no ORE has been borrowed.
Active is displayed when ORE has been borrowed, and the Trove has not been liquidated or redeemed against.
Redeemed is displayed when a Trove has been redeemed against for having a risky LTV. To find more information about Redemptions, look at our Redemptions and Liquidations page.
Liquidated is displayed when a Trove has been liquidated for going above the maximum LTV. To understand how Liquidations work, follow this link to our page.
Collateral Ratio and Loan to Value Ratio
The terms Collateral Ratio and Loan-to-Value (LTV) ratio are both used to describe the relationships between the collateral, the borrowed amount, and the value of the collateral. Understanding the distinction between these two concepts is crucial for users who want to maintain a healthy position in the protocol.
Collateral Ratio The Collateral Ratio is the proportion of the total value of the collateral to the total value of the borrowed amount. It is expressed as a percentage and indicates the degree to which the collateral backs the borrowed amount.
CR = (BV/CV )⋅100
A higher Collateral Ratio means that the borrower has more collateral relative to the borrowed amount, which reduces the risk for the protocol.
Loan-to-Value (LTV) Ratio The LTV ratio, on the other hand, is the proportion of the total value of the borrowed amount to the total value of the collateral. It is also expressed as a percentage and indicates the degree to which the borrowed amount is covered by the collateral.
LTV = (CV/BV )⋅100
A lower LTV ratio implies a safer position for the borrower, as it means that they have more collateral relative to the borrowed amount, reducing the risk of liquidation. In Earth Protocol, it is essential to maintain a healthy LTV ratio to avoid liquidations and ensure a smooth borrowing experience.
For simplicity and consistency, this documentation will always refer to LTV.
Why would I want to put my collateral on Earth Protocol?
Capital Efficiency and Productive Collateral Since less collateral is needed for the same loan, Earth Protocol offers more capital efficiency than other decentralized lending platforms. Your productive asset continues to provide you with interest even when it is used as collateral.
This is also true for your LP positions that will be available to be used as collateral in a future update.
Borrowers can also increase their exposure to the LST of their choice by leveraging their position.
For example, the proceeds of loans issued in the form of ORE can be used to purchase more collateral, allowing you to mint more ORE.
This is not a recommendation on how to use Earth Protocol; use leverage at your own risk!
Collateral LTV You can find here and on our front-end interface the maximum amount of ORE that you can borrow based on your Bitcoin LST collateral of choice.
| Token | Maximum LTV |
|---|---|
XION | 80% |
In addition, mint caps are in place to ensure protocol stability. These numbers will be reviewed as the protocol grows and will be available on the Earth Protocol website.
Fixed 0% APR Many borrowing protocols offer a variable borrowing APR determined based on supply and demand. This can be quite inconvenient for users since they need to constantly check their position to avoid liquidation.
With Earth Protocol, you can enjoy interest-free borrowing with a low maximum and fixed one-time fee for positions longer than six months. Short-term borrowers will be incentivized to use the protocol with a partial refund mechanism.
Peg Stability and Softer Redemptions In order to reduce the volatility of ORE, a Liquity-like redemption mechanism will be enabled after launch. More information is available on the Redemptions and Liquidations page.
You can find more on the System Status and Price Volatility page.
Decentralization Make a difference in the XION ecosystem by supporting minority tokens—especially those emphasizing decentralization.
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