How to take a loan, and what to look out for to ensure loan performance meets your expectation.
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Every USDx is loaned into existence. USDx will typically be loaned into existence by users wishing to leverage and free up their collateral value without selling the underlying collateral (USDx Leverage Traders), or by people wishing to utilise USDx to gain access to yield opportunities (USDx Yield Speculators).
USDx loans can unlock massive capital efficiencies and opportunities for amplified capital deployment, so let's see how we can get started by taking out our first USDx loan 👇
Visit https://ouroboros.foundation/usdx#/usdx-minter, and connect your wallet. On this screen, you will be presented with the loan management page.
Ensure you have at least $2,500 worth of collateral in your wallet (but ideally, a lot more)
Click OPEN NEW ACCOUNT
Enter the amount of collateral you would like to secure your loan with, and also the amount of USDx you would like to draw against it. Alternatively, enter an amount of collateral, and use the slider to increase or decrease your loan amount.
When entering your collateral and loan amount, the above informational displays will update to give you a sense of the overall risk to the collateral of your loan.
Current Price: The current price of the collateral asset (in this case, TitanX)
Liq Price: The price at which your loan collateral becomes liquidatable by the protocol. If you are liquidated, you will lose your collateral, but keep your loaned USDx (if not currently in escrow. See below)
Safety: The price drop in the collateral asset which would trigger your liquidation. In this case, TitanX would need to fall from 0.0000003728 to 0.0000001231 to liquidate your loan, which would equate to a 67% price drop. (0.0000003728-0.0000001231)/0.0000003728 == 67%~ drop. In other words: the higher this number, the safer your loan.
MCR/CCR: The Minimum(M) and Critical(C) Collateral Ratios (CR) for the collateral. Explained simply here, as this is a beginners tutorial:
MCR: Collateral ratio below which you WILL be liquidated.
CCR: Collateral ratio below which you MIGHT be liquidated IF the Global Health falls below the CCR.
CHEAT-CODE: Always keep your collateral ratio above the CCR to account for all cases ✅
Total Debt: Your entire debt including fees and refundable liquidation gas fee ($200).
Fee: The one time fee charged for issuance of new debt.
Once you have configured your loan as desired, APPROVE the collateral, and once approved, CONFIRM the loan.
Your USDx will now either:
Appear in your wallet directly, requiring no further action on your part 🎉
Go into escrow, and require that you claim it after a cooldown timer has completed.
If you see the following notice on a collateral, you will be required to wait a short amount of time before your newly created USDx is released to your wallet. As stated, if your position is liquidated during this time, the USDx will not be released to your wallet.
After completing the steps above, you will see a countdown timer and a claim button on your loan overview screen. Be sure to claim your USDx after the timer expires, and complete the escrow process, as no additional debt will be mintable to your position until doing so.
At this stage, you have successfully minted USDx to your account, and can use it as you wish. However, it's important to keep an eye on your loan, to ensure a healthy state, and verify that you can continue to enjoy price exposure to the underlying collateral (if desired).
After your loan is created, there are three major items you should monitor depending on how you intend to use the platform. Redemptions, Liquidation Risk, and how close the system is to Recovery Mode. Each of these have a unique impact on your collateral/debt exposure, and liquidation level.
None of the following topics are intrinsically negative, and are in fact central to how the system operates. However, much like Impermanent Loss is a consideration in UniswapV2, and 'In Range Liquidity' is a consideration in UniswapV3, Redemption volume and Collateral Ratios should be an explicit consideration in USDx.
USDx is redeemable at any given moment, for $1 worth (minus fees) of collateral. The order in which collateral is redeemable, progresses according to the health of open loans, in ascending order. In other words, redemptions progress from the least collateralised loans, to the most collateralised loans. To get a visual ordering of redeemable loans, you can view positions in order of ascending health on: https://ouroboros.foundation/usdx#/liquidations
So simply, what are the key takeaways for the purposes of ongoing monitoring of your loan with regard to redemptions?
If you wish to maintain full exposure to your underlying collateral (TitanX), monitor your loan frequently to ensure that you are decently 'deep' into the list of loans by order of health. This gives you time to react, in the case that you move closer to the front of the queue, and may be redeemed against. If you wish to maintain collateral exposure, improve your health by either depositing additional collateral, or paying off debt.
If you do happen to be redeemed against, but still want the TitanX collateral, you can repurchase it from the market if desired, using your USDx or other asset which was procured with USDx. Redemptions fundamentally deleverage your loan, meaning if you want that leverage to remain, it's up to you to adjust your portfolio accordingly.
If you want to avoid redemptions, adopt a strategy of being 'relatively healthy' compared to other users in the system.
During times of downward price movement in the underlying collateral, you should check your loan frequently to ensure that you are not dangerously close to liquidation. In a collateral with a healthy Total Collateral Ratio (TCR), it is sufficient to ensure this stays above the MCR (120% for TitanX). If however, the TCR is close to the CCR of 150%, the system may enter what is called Recovery Mode. In this mode, loans with a health ratio of below 150% can be liquidated.
The decision tree here is simply:
If you wish to maintain a risky loan (IE, 150% CR and below), you should frequently check the Global Health of the collateral on your loan page, to ensure that the system will not enter recovery mode.
If you wish to operate as safely as possible, maintain a health ratio above 150% at all times.
USDx loans are a powerful tool, which can unlock massive capital efficiencies in the right hands. In the most simple case, you open a modest loan, and use your USDx as you wish. How you monitor that loan after, is all down to what you want to get out of it.
Monitor and understand your loan in the same way you would a UniswapV2 or V3 position, in full knowledge of the mechanics which underpin it, and you will never have an unexpected outcome or surprise deleveraging via either Redemptions or Liquidations. People often don't get rekt by loans, they simply are surprised by seeing an unexpected outcome, much like some people are surprised when they provide LP to earn fees, but then find their LP contains much less of the coin which ran 100x than when they first provided liquidity! (Impermanent Loss).
