Collateral

Collateral in Based

The BSD borrowed in vaults is backed by the value of Bitcoin (sBTC). Based is designed to ensure that global collateral always exceeds global debt. The minimum collateral ratio of 110% (MCR or collateral/debt), is also commonly known as 90.9% loan to value ratio (LTV), is the lowest ratio of debt to collateral that will not trigger a liquidation. All vaults must exceed 110% or they will be liquidated.

Liquidations

Vaults that fall under the minimum collateral ratio of 110% will be liquidated. Under normal conditions, the debt of the vault will be absorbed by the Stability Pool and its collateral distributed among Stability Providers.

What happens if my vault is liquidated?

When the value of your sBTC falls below 110% of the value of your borrowed BSD you will no longer be able to retrieve your collateral by repaying your debt. Your vault will be liquidated by the Stability pool or redistribution. You will still have the BSD, and because your collateral is ~110% your net loss in immediate dollar terms would be ~9.09% (100% * 10 / 110).

Collateral FAQs

What type of collateral can I use to borrow BSD?

The Based Protocol is a Bitcoin-only system. It exclusively uses sBTC, a programmable form of Bitcoin on the Stacks blockchain, as collateral.

How is my collateral kept safe?

Your sBTC collateral is locked in a non-custodial smart contract on the Stacks blockchain. It is not held by a traditional custodian but is instead secured by a decentralized network of Stacks miners and validators. The system is designed so that your funds are only subject to the rules set forth in the smart contract code, not the interference of any person or entity.

What is a "collateral ratio" (CR)?

A collateral ratio is the ratio of the dollar value of your locked sBTC collateral to the dollar value of your borrowed BSD debt. For example, if you have $2,000 worth of sBTC as collateral and a debt of 1,000 BSD, your collateral ratio is 200%.

What is the minimum collateral ratio for my vault?

Under normal operating conditions, the minimum collateral ratio (MCR) is 110%. Your vault must remain above this level to avoid being liquidated. This is also known as a 90.9% loan-to-value (LTV) ratio.

Can I add more collateral to my vault later?

Yes, you can add more sBTC collateral to your vault at any time.

Am I able to withdraw some of my collateral?

Yes, you can withdraw sBTC from your vault as long as the vault's collateral ratio remains at or above 110% after the withdrawal.

What is the "global collateral cap"?

The global collateral cap is a system-wide limit on the total USD value of sBTC that can be deposited as collateral across all vaults in the protocol. When creating a new vault or adding collateral, the new deposit cannot cause the system to exceed this cap.

How does a "redemption" affect my collateral?

If your vault is redeemed against, you lose a portion of your sBTC collateral. The amount of collateral taken is equal in value to the amount of your debt that is repaid by the redeemer.

How does a liquidation affect my collateral?

When the value of your sBTC falls below 110% of the value of your borrowed BSD, you will no longer be able to retrieve your collateral by repaying your debt. Your vault will be liquidated by the Stability Pool or through redistribution. Your entire sBTC collateral is transferred away, and you lose access to it. You will still keep the BSD you originally borrowed. Because the liquidation happens when your collateral is worth ~110% of your debt, your net loss in immediate dollar terms is about 9.09%.

Why would my collateral amount change without me doing anything?

Your vault's collateral amount can increase if the system enters a "Redistribution" state. This is a rare event that happens when vaults are liquidated while the Stability Pool is empty. In this case, your vault will receive a proportionate share of both the collateral and the debt from the liquidated vaults.