Vaults and borrowing

A vault is the position. It is bound to one address, and each address has one. It records collateral and a debt in USDL. On Base the collateral is ETH and the only collateral. On PulseChain it is PLS and the only collateral. Opening one, drawing USDL, adding collateral, and repaying are the borrower’s transactions. Closing it means the debt is zero and the collateral has been withdrawn.

The ratio

The individual collateral ratio is the dollar value of the collateral in that vault, at the oracle price, divided by its USDL debt. The system collateral ratio is the same fraction across every vault. The minimum collateral ratio is a protocol parameter set at 110%. A debt of 10,000 USDL needs at least $11,000 of collateral to sit on that line. The docs’ example at an ETH price of $3,788: depositing 3 ETH and borrowing 3,788 USDL is a 300% ratio. Borrowing 9,470 USDL against the same 3 ETH is 120%.

The smallest draw is 2,000 USDL. There is no repayment date. The position can stay open as long as the ratio holds. The interface shows the minimum and the system’s total collateral level before you borrow. A ratio above 150% keeps the collateral safe from liquidation even in Recovery Mode.

What gets added to the debt

Interest does not accrue. Two amounts are added when you draw.

• A liquidation reserve of 200 USDL. It counts as debt, so it raises the collateral you need. It is refunded when you repay and close. If the vault is liquidated, the 200 USDL is paid to the caller instead.
• A one-time borrowing fee between 0.5% and 5% of the draw, after the reserve is set aside. The fee is added to the debt. In Recovery Mode it is 0%.

The docs’ worked example: the fee is 0.5% and the borrower draws 4,000 USDL. The reserve is 200. The fee is charged on the remaining 3,800, which is 19 USDL. The borrower receives 3,781 USDL. The debt on the vault is the full draw.

The fee rate is the base rate plus 0.5%, the same family of rate used for redemptions. Redemptions push it up. Time with no redemptions lets it decay. It cannot fall below 0.5% in normal operation, which is there to stop people redeeming in front of the oracle. It cannot rise above 5% on a borrow. Repaying your own debt does not pay this fee. Redeeming USDL for collateral does. That distinction is the whole of the “0% loan” claim: nothing compounds, and the cost of minting is paid once, up front.

If the ratio breaks

Under 110% in normal operation, anyone can liquidate the vault. You keep the USDL already in your wallet. You lose the collateral. The docs calculate the loss at the line as 9.09%, which is 10/110 of the collateral’s dollar value. The caller receives 200 USDL plus 0.5% of the collateral. Batches of roughly 160 to 185 vaults can be liquidated together. The debt is cancelled against USDL in the Stability Pool, and the collateral goes to the depositors. If the pool cannot cover it, the remainder is redistributed to other active vaults in proportion to their collateral, which is why a vault’s balances can rise without its owner sending a transaction.

A redemption is not a liquidation. If your vault has the lowest ratio in the system, someone redeeming USDL takes collateral from you and reduces your debt by the same dollar amount. A partial redemption leaves the vault open at a higher ratio. A full redemption clears the debt, returns the liquidation reserve, and leaves any surplus collateral for you to claim. The page for that mechanism is Redemptions.

Sorted list

Vaults are kept in a sorted doubly linked list ordered by collateral ratio. Redemptions walk that list from the bottom. Liquidations can batch from the bottom as well. Debt In Front, on the redemption page, is the USDL debt sitting in vaults below yours on that list.