Today we are going through some fundamentals of using the Unit Protocol to borrow and create the USDP stable coin.
Choose token (collateral) in a dropdown list of available tokens as collaterals.
Scroll down to the "Deposit collateral and Borrow USDP" section
Input numbers depend on your preferences and press "Execute"
Sign the transaction with Metamask etc.
Use USDP as you wish
Repay your debt via the section "Repay USDP & Withdraw collateral"
Amount to repay will be equal to borrowed USDP amount + stability fee for the period.
The great thing about Unit Protocol is the interface. It is a very easy and intuitive interface to use, as you would come to find out at the end of this video.
The first thing you want to do is to connect your wallet. All you have to do is to click on this box to accept the terms and conditions, and then click on “Connect Wallet”. I have used my MetaMask to connect, and as soon as that is done we could move on to the next step.
Let's go through the interface and see how we can borrow USDP for our token.
Initially here, we want to decide on the collateral that we want to use. This is the token type you want to use to borrow or create USDP. For the purpose of this video, I will be using Ether so I just click on Ether from the list here.
Choose Collateral section
The figures shown here are important to go through before we go on any further.
It let us choose the interested token and see basic parameters for the collateral. Every term has its hint. If you press the information icon, you will see a pop-up with helpful information explaining the term. But let's define them one more time here:
Initial collateral ratio is how much you could collatorize your token. Simply, if I try to collatorize at 77% to borrow $1000, I will be able to take $770.
Initial collateral ratio(ICR), % - debt/collateral ratio represents the maximum amount of debt a user can borrow initially (when opening CDP) with a selected collateral token.
For example, 40% means that for every $1000 collateral value, a user can borrow a maximum of $400 USDP initially.
Liquidation ratio(LR), % - debt/collateral ratio represents the limit after which anyone can liquidate the CDP.
As an example: 50% means that if the debt/collateral ratio will be >50%, the position can be triggered for liquidation.
LR>ICR creates a safety reserve to avoid instant liquidation if a user borrows the maximum limit.
Stability fee, % - represents the cost of USDP debt per year. It capitalizes during every action, which reduces debt/collateral ratio like withdrawing collateral and borrowing more USDP.
Liquidation fee, % - a fee which represents a % from the loan. Will be deducted from collateral if liquidation will occur.
Available USDP to borrow with current collateral, USDP - the maximum amount of USDP which can be borrowed for selected collateral token.
In our case, it is 0 because all the available USDP limit was already taken for the DUCK token at that moment.
Next is the Liquidation ratio. We have covered this in detail in a separate video which I have linked in the description box below. It is basically at how high of a percentage does the actual collateralized debt position trigger liquidation. The riskiness of your CDP is determined by how close you are to the liquidity rate. For example, the Initial Collateral Rate (ICR) for Ether is 77%, while the liquidity rate is at 78%. Meaning that if I go ahead and use the full limit of collateral at 77% I'll be only 1% away from being liquidated. That is why I would advise you to borrow below the ICR and the beauty of Unit Protocol is that you can use the risk indicator as you can see here (point at it on screen) as a reference to how risky your transaction is.
Next ratio is the Stability Fee. This acts as a risk parameter, it indicates the inherent risk in creating USDP using different collaterals. This is why the stability rate for a stable coin such as USDT is at 2%, while the same rate is doubled at 4% for Ether.
This section shows your wallet balances: DUCK, USDP, and selected token-collateral.
This fee represents the cost of USDP debt per year. It capitalizes during every action, which reduces debt/collateral ratio like withdrawing collateral and borrowing more USDP. The Stability Fee is continuously compounding interest and totals the given percentage at the end of the year. For example, if I borrow $100 worth of USDP at 10% stability fee, I will have to pay back $110 dollars at the end of the year.
Next is the Liquidation fee. This is a fee that will be calculated as a percentage from the loan, which will be deducted from collateral if liquidation ever occurs.
Input the amount of the token you would like to deposit as collateral and how much you would like to borrow.
And finally, we have the USDP available to borrow with this collateral which is Ether in this case.
Max button for token collateral will input your token wallet balance. Max button for USDP will count the amount of USDP based on the ICR ratio.
Now that we are ready to initiate the process, I will input how much Ether I want to collatorize against USDP in the box provided. Below this we can see what is the maximum amount I could borrow against this collateral.
The "Execute" button will send the transaction to your wallet and ask you to sign for execution.Deposit collateral & Borrow USDP
I can either use the slider to choose an amount or simply choose a percentage from the ones available here. As you can see, the higher the amount, the riskier the operation will be. Basically, it will be riskier the closer we get to the liquidation CDP. I will go ahead and pick 50%.
(Continue once Ether balance is available)
If you already borrowed some funds and would like to partially or fully repay your debt or withdraw collateral, you will need the section.
I will use be using Metamask for this transaction but you could also use wallet connect to do so.
Max button for USDP will set the amount to Borrowed USDP + Stability fee for debt period.
Max button for collateral will count the amount of collateral you can withdraw based on your CDP parameters and current input. For complete withdrawal, press max for USDP to set full repayment first.Repay USDP & Withdraw collateral
This section represents the situation with your selected collateral CDP. To switch between different CDPs, choose another token in the section "Choose collateral".Your CDP section
Let's take a look at the terms here:
Borrowed USDP - the amount of initially borrowed USDP for this main collateral CDP.
Collateral amount - the deposited asset amount.
Liquidation price - below the collateral price the position(CDP) can be liquidated.
Utilization - % of borrowed USDP compare to maximum USDP, which is possible to borrow for the CDP.