💰Mint & Borrow

The main feature to generate USDFC and borrow it into your connected wallet

Overview

Mint & Borrow is the core function of the USDFC Stablecoin Protocol that allows users to deposit Filecoin (FIL) as collateral and mint USDFC stablecoins. This mechanism provides liquidity without selling your FIL, maintaining exposure to potential FIL price appreciation while accessing dollar-denominated value.

Why Mint & Borrow USDFC?

• Get instant and ample $ liquidity without selling FIL

• No need for counterparties or external exchanges

• Keep FIL securely in a trove while enhancing capital efficiency

How It Works

To use USDFC, you first open a trove to manage your FIL collateral and USDFC debt, maintaining a minimum collateralization ratio (MCR) of 110% to avoid liquidation. This ensures the safety and stability of the system. The process involves the following steps:

1. Deposit FIL as Collateral

   • Prepare FIL in your wallet to cover the USDFC debt (borrowed amount + mint fees)

   • Open a trove and input a FIL amount to deposit as collateral

   • Input USDFC amount you want to borrow (after minted inside your trove)

     • You must maintain at least a 110% collateral ratio

2. Mint USDFC

   • Once the FIL amount and USDFC amount is set, check that the minting costs are added as total debt, then you can click confirm

   • Your connected wallet (ex. MetaMask) asks you to send a transaction

   • Once the USDFC amount is minted, you can see your borrowed amount in the app

   • Import the USDFC contract address to your wallet so you can use it anywhere

3. Maintain Collateral Ratio

   • The minimum collateralization ratio (MCR) is set to 110%

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

4. Adjust or Close

   • You can make adjustments on your trove to manage FIL collateral and USDFC debt

   • Adjustment is used to add/reduce collateral, or borrow/repay USDFC

   • If you no longer need the trove, you can close it by repaying debts (borrowed + fees) in USDFC

     • You don't need to repay the liquidation reserve

5. 3rd Party Trove Adjustment (Liquidation & Redemption)

   • You should be aware that your trove can be adjusted by special conditions below

   • To protect the system, anyone can liquidate your collateral using USDFC stability pool for the trove below 110% collateral ratio

   • To ensure 1:1 peg, anyone can bring USDFC and redeem FIL collateral for the trove with the lowest collateral ratio

Key Parameters

Parameter	Description	Default Value
Minimum Collateral Ratio	Minimum required ratio of collateral to debt	110%
Minimum Borrow Amount	Minimum USDFC that can be borrowed	180 USDFC
Liquidation Reserve	USDFC reserved for potential liquidation gas costs	20 USDFC
Minting Fee	One-time fee charged when minting USDFC	0.5% to 5%
Interest Rate	Ongoing interest charged on borrowed USDFC	0% (currently)

The system requires a minimum borrowed amount of 180 USDFC and reserves an additional 20 USDFC as long as trove exists. It creates limitations on all trove activities.

When you want to close your trove completely, you should repay borrowed amount + minting fees in USDFC.

Minting Costs

When you mint USDFC, the following costs apply:

$\text{Minting Fee} = \text{Liquidation Reserve} + \text{One-Time Minting Fee}$

1. 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

• When you close your trove completely, the reserve will be returned and burnt

2. One-Time Minting Fees

$\text{One-Time Minting Fee} = (\text{Base Rate} + 0.5\%) \times \text{Minted USDFC}$

• The Minting (Borrowing) 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

• 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

Total Debt Calculation Example

$\text{Total Debt = Borrowed amount + Liquidation Reserve + One-Time Minting Fees}$

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

• Liquidation Reserve: 20 USDFC

• One-Time Minting Fee: Fixed Fee + Base Rate = 40 USDFC

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

  • Base Rate: 0.5% of 4,000 USDFC = 20 USDFC (usually 0%)

• 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.

Interest Rate

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

Common Questions

What is the minimum amount of USDFC I can borrow? The minimum borrow amount is 180 USDFC, plus the 20 USDFC liquidation reserve.

Do I need to repay the liquidation reserve when closing my trove? No, the liquidation reserve is automatically refunded when you close your trove.

What happens if the value of my FIL collateral drops? If your collateral ratio falls below 110%, your trove becomes eligible for liquidation. It's recommended to maintain a higher ratio (150%+) as a safety buffer.

Learn more in the FAQs section

Related Topics

• The Trove System

• Liquidation

• Redemption

• Recovery Mode