# Borrowing FAQ

Please read our DISCLAIMERS: RISK OF USING PROTOCOL before using our protocol and/or interacting with YETI or the YUSD token.

### What do you mean by collateral?

Collateral is any asset which a borrower must provide to take out a loan, acting as a security for the debt.

### What is your trove's ICR (individual collateral ratio)?

This is the ratio between the "risk-adjusted value" in your Trove and its debt in YUSD.
The risk-adjusted value (RAV) takes into account the dollar value of your collateral, as well as a safety ratio to account for how risky the collateral is. Higher risk collateral has a lower safety ratio, meaning a lower RAV.
Risk-Adjusted Value = Safety Ratio * Price * Collateral Amount
There are multiple classes of collateral, with highly liquid and trusted collateral having a safety ratio of 1.0 and more risky collateral having a safety ratio of 0.8 or 0.5. All non-stablecoin collateral has a safety ratio between 0 and 1. Stablecoin collaterals have a safety ratio up to 1.1, which allows you to borrow at an effective collateral ratio of less than 110%.
Your individual collateral ratio will fluctuate over time as the prices of your collateral change. You can influence the ratio by adjusting your Trove’s collateral and/or debt — i.e. adding more collateral or paying off some of your debt.
For example: Let’s say the current value of one ETH-AVAX JLP is $1,000 and you decide to deposit 30 JLP. Say ETH-AVAX JLP has a multiplier of 0.8. This means your risk-adjusted collateral value is $1,000 * 30 * 0.8 = 24,000. If you borrow 10,000 YUSD, then the collateral ratio for your Trove would be Collateral Value / Debt = 24,000/10,000 = 240%. If you instead took out 20,000 YUSD that would put your trove's collateral ratio at 24,000/20,000 = 120%.

### How can you offer a collateral ratio as low as 110%?

Yeti Finance allows for instantaneous, more efficient liquidations. Anyone can call a function to liquidate a trove whose collateral ratio falls below 110% MCR. When the liquidate function is called, YUSD is transferred from the stability pool in order to repay the debt and the trove’s collateral is transferred to the stability pool.
Anyone can run a liquidation bot or call liquidate to receive liquidation rewards. Liquidators receive a reward of 200 YUSD + 0.5% of the collateral from the trove.
Other lending protocols require a higher collateral ratio because they rely on auction mechanisms or outside liquidators to purchase collateral instead of a utilizing a safer native liquidation system.

### Do I have to pay fees as a borrower?

Yeti Finance charges borrowing fees. There are two types of fees one-time fees for borrowers. First, there is a deposit fee when you add collateral to Yeti Finance. Second, is a one-time borrow fee when new YUSD debt is issued.
Deposit fees depend on the type of collateral you are adding. If you are adding a "risky" collateral type which is already starting to back a significant amount of YUSD, the deposit fee will be higher. Borrow fees are based on redemption volume. If more redemptions are happening (which means YUSD is likely trading at less than 1 USD), the borrowing fee would continue to increase, discouraging borrowing.
Under normal conditions, the one-time borrow fee is confined to a range between 0.5% and 5%. If redemptions are occurring, this suggests YUSD Price < $1, so fees are higher to disincentivize borrowing and de-incentivize more YUSD from entering the market. However, the borrow fee is0% during Recovery Mode. Additionally there is interest on borrowed YUSD, which depends for each user based on the collateral makeup of their trove. Interest is paid in YUSD and the additional interest accrues once per day. We also take a cut of yield generated on collateral deposited in Yeti Finance. More details here. ### What is a Trove? A Trove is where you take out and maintain your loan. Each Trove is linked to an Avalanche address and each address can have just one Trove. If you are familiar with Vaults or CDPs from other platforms, Troves are similar in concept. Troves can hold multiple collateral types as well as a debt denominated in YUSD. You can change the amount of each by adding collateral or repaying debt. As you add/subtract collateral and debt, your Trove’s collateral ratio changes accordingly. You can close your Trove at any time by fully paying off your debt, after which you will receive all collateral back. ### How can I borrow with Yeti Finance? To borrow, you must deposit a certain amount of collateral to open a Trove. Then you can draw YUSD up to a collateral ratio of 110%. A minimum debt of 2,000 YUSD is required. ### When do I need to pay my loan back? Loans issued by the protocol do not have a repayment schedule. You can leave your Trove open and repay your debt any time, as long as you maintain a collateral ratio of at least 110%. Interest accruing can increase your debt over time, which users should keep track of to make sure they keep their ICR at a level they are comfortable with. The minimum collateral ratio (or MCR for short) is the lowest ratio of collateral to debt that will not trigger a liquidation under normal operations (aka Normal Mode). This is a protocol parameter that is set to 110%. So if your Trove has a debt 10,000 YUSD, you would more than $11,000 worth of collateral to avoid being liquidated.
To avoid liquidation during Recovery Mode, it is recommended to keep ratio comfortably above 150% (e.g. 200%). Additionally, if you are worried about redemptions, then check the lowest trove AICR to make sure you are at a comfortable level.

### What happens if my Trove is liquidated?

You can lose some or all of your collateral as your debt is paid off through liquidation, i.e. you will no longer be able to retrieve your collateral by repaying your debt. In normal mode, a trove can be liquidated if its collateral ratio is less than 110%. In recovery mode, a trove can be liquidated if its collateral ratio is less than 150%.
On liquidation, the system will take collateral from your trove up to max of 110% of the value of your debt. Any additional collateral in a liquidated trove will be available for the original trove owner to claim. i.e. if you have $140,000 in collateral in your trove and 100,000 in YUSD debt and your trove gets liquidated, the system will take$110,000 of your collateral and the other $30,000 will still be yours, waiting for you to claim it. ### What is the Liquidation Reserve? When you open a Trove and draw a loan, 200 YUSD is set aside as a way to compensate gas costs for the transaction sender in the event your Trove being liquidated. The Liquidation Reserve is fully refundable if your Trove is not liquidated, and is given back to you when you close your Trove by repaying your debt. The Liquidation Reserve counts as debt and is taken into account for the calculation of a Trove's collateral ratio, slightly increasing the actual collateral requirements. ### What happens if my Trove is redeemed against? When YUSD is redeemed, the collateral provided to the redeemer is allocated from the Trove(s) with the lowest collateral ratio (even if it is above 110%). If at the time of redemption you have the Trove with the lowest ratio, you will give up some of your collateral, but your debt will be reduced accordingly. The USD value by which your collateral is reduced corresponds to the nominal YUSD amount by which your Trove’s debt is decreased. You can think of redemptions as if somebody else is repaying your debt and retrieving an equivalent amount of your collateral. As a positive side effect, redemptions improve the individual collateral ratio of the affected Troves, making them less risky. Redemptions can fully pay off a Trove’s debt. In this case, your Trove is closed, and you can claim your collateral surplus. Redemption fees are paid by the person who redeems, and the full redemption fee goes to the borrower who is redeemed against for the inconvenience. Let’s say you own a Trove with 2 interest bearing tokens(ibTKNs) collateralized and a debt of 3,200 YUSD. The current price of ibTKN is $2,000. This puts your collateral ratio (CR) at 125% (= 100% * (2 * 2,000) / 3,200). Let’s imagine this is the lowest CR in the Yeti Finance system and look at two examples of a partial redemption and a full redemption:
Example of a partial redemption
Somebody redeems 1,200 YUSD for 0.6 ibTKN and thus repays 1,200 YUSD of your debt, reducing it from 3,200 YUSD to 2,000 YUSD. In return, 0.6 ibTKN, worth $1,200, is transferred from your Trove to the redeemer. Your collateral goes down from 2 to 1.4 ibTKN, while your collateral ratio goes up from 125% to 140% (= 100% * (1.4 * 2,000) / 2,000). Example of a full redemption Somebody redeems 6,000 YUSD for 3 ibTKN. Given that the redeemed amount is larger than your debt minus 200 YUSD (set aside as a Liquidation Reserve), your debt of 3,200 YUSD is entirely cleared and your collateral gets reduced by $3,000 of JLP, leaving you with a collateral of0.5 ibTKN (= 2 - 3,000 / 2,000).

### How can I take advantage of leverage?

You can sell the borrowed YUSD on the market for ibTKNs and use the latter to top up the collateral of your Trove. That allows you to draw and sell more YUSD, and by repeating the process you can reach the desired leverage ratio.
Assuming perfect price stability (1 YUSD = \$1), the maximum achievable leverage ratio is 11x. It is given by the formula:
$maximum\ leverage \ ratio = \frac{MCR}{(MCR - 100\%)}$
Here, MCR is the Minimum Collateral Ratio.

### Why did the collateral and debt of my Trove increase without my intervention?

In rare situations, if Troves are liquidated and the Stability Pool is empty (or gets emptied due to the liquidation), every borrower will receive a portion of the liquidated collateral and debt as part of a redistribution process.
A trove can only be redistributed collaterals that it currently holds. I.e. if your trove has no WAVAX, you won't be redistributed WAVAX in the event that a trove with WAVAX gets liquidated while the stability pool is empty. Redistribution of debt occurs in a proportional fashion based on the RAV of collaterals in the trove that is liquidated. Redistributions should not occur under normal system operations, but can occur during black swan events/if the stability pool is not sufficiently filled with YUSD.
I.e. if a trove has 20% RAV in WETH and 45% RAV in WAVAX, and 35% RAV in gOHM and gets liquidated, 20% of its debt will be proportionally redistributed to troves with WETH based on their ownership of the total WETH in the system, 45% to troves with WAVAX in the same fashion, and 35% of debt will go to troves with gOHM in the same way.