Minting

The Minting process in Secured Finance’s stablecoin protocol allows you to generate USDFC, a decentralized, Filecoin-backed stablecoin, by depositing Filecoin (FIL) as collateral.

How Minting Works

To mint USDFC, you need to deposit FIL, maintaining a minimum collateralization ratio (MCR) of 110%. This ensures the safety and stability of the system. The process involves the following steps:

1. Deposit FIL as Collateral

   • Start by connecting your wallet and depositing FIL into the protocol.

   • The amount of USDFC you can mint depends on the value of your FIL and must maintain at least a 110% collateral ratio.

2. Mint USDFC

   • Once the FIL is deposited, you can mint USDFC up to the allowed limit.

   • For instance, if you deposit 1,000 USD worth of FIL, you can mint up to 909 USDFC, keeping a 110% collateral ratio.

3. Maintain Collateral Ratio

   • It’s crucial to monitor your collateral ratio to avoid liquidation. If the collateral value drops, consider adding more FIL or repaying some USDFC to maintain a healthy buffer.

Minting Costs

When you mint USDFC, the following costs apply:

$\text{Minting Fee} = (\text{Base Rate} + 0.5\%) \times \text{Minted USDFC} + \text{Liquidation Reserve}$

One-Time Minting Fee:

• The Minting Fee consists of two parts:

  • Fixed Fee (0.5%): Fixed fee charged at the time of minting.

  • Base Rate (0% to 4.5%): The Base Rate varies depending on the system’s conditions. (Details below)

• Together, the Minting Fee ranges from 0.5% to 5%, making it a one-time cost and added to your debt.

• During Recovery Mode, the Minting Fee is set to 0%, encouraging users to add collateral and stabilize the system.

0% Interest Fee:

At the current stage, Secured Finance does not charge any ongoing interest rate fees on USDFC. This strategic decision allows for a more accessible and user-friendly experience:

Why no interest fees?

• Our primary goal is to foster the widespread adoption of USDFC within the Filecoin ecosystem and make it more attractive for DeFi users.

• By keeping the interest rate at 0%, we are encouraging users to mint and use USDFC without the added burden of accumulating interest over time.

We may introduce an interest rate fee on borrowed USDFC in the future to further support the long-term sustainability of the protocol

Liquidation Reserve:

• A 20 USDFC reserve is added to your debt when minting USDFC. This reserve is intended to cover gas fees in case of liquidation.

• If no liquidation occurs and you fully repay your debt, the 20 USDFC reserve will be refunded when you close your position.

Example Calculation

If you mint 4,000 USDFC with a Base Rate of 0.5%:

• Fixed Fee: 0.5% of 4,000 USDFC = 20 USDFC.

• Base Rate Fee: 0.5% of 4,000 USDFC = 20 USDFC.

• Liquidation Reserve: 20 USDFC.

• Total Debt: 4,060 USDFC.

---

Base Rate Explanation

The Base Rate is a dynamic component of the borrowing fee that adjusts according to market conditions and redemption activity:

Dynamic Range:

• The Base Rate ranges from 0% to 4.5%, adjusting based on the amount of USDFC redeemed relative to the total USDFC supply.

• The full Minting and Redemption Fee (fixed fee + base rate) therefore ranges between 0.5% and 5%.

Calculation:

The Base Rate is initially set at 0% and adjusts based on the redemption activity. The formula for updating the Base Rate is:

$$\text{Base Rate}_t = \text{Base Rate}_{t-1} + 0.5 \times \left( \frac{m}{n} \right)$$

Where: m = amount of USDFC redeemed n = current total supply of USDFC

Decay:

The Base Rate decays over time when there is low redemption activity, following a 12-hour half-life. This ensures that the Base Rate gradually returns to its baseline if no significant redemption activity occurs.

The decay formula is:

$$\text{Base Rate}_t = \text{Base Rate}_{t-1} \times \delta^{\Delta t}$$

Where: δ = hourly decay factor (e.g., 0.944) Δt = time elapsed (in hours) since the last redemption or loan issuance.

The decay factor δ (0.944) is selected to ensure a 12-hour half-life for the base rate.

Purpose:

The Base Rate is designed to maintain stability in the USDFC supply by adapting to market conditions. It helps regulate borrowing behavior, balancing liquidity and redemption activity while keeping the system solvent.