Definitions

As you read through this Knowledge Base, you may see a number of terms and abbreviations which may require further explanation.

We have chosen to list many of those at the start of this document for quick reference now, and so you can return to them later:

TCR = Total Collateral Ratio

ICR = Individual Collateral Ratio

MCR = Minimum Collateral Ratio

SP = Stability Pool

DIF = Debt In Front

Individual collateralization ratio (ICR): a Vault's ICR is the ratio of the dollar value of its entire collateral at the current PLS:USD price, to its entire debt.

Total collateralization ratio (TCR): the ratio of the dollar value of the entire system collateral at the current PLS:USD price, to the entire system debt.

Vault: a collateralized debt position, bound to a single PulseChain address. Also referred to as a “CDP” in similar protocols.

USDL: The stablecoin that may be issued from a user's collateralized debt position and freely transferred/traded to any PulseChain address. Intended to maintain parity with the US dollar, and can always be redeemed directly with the system. 1 USDL is always exchangeable for $1 USD value of PLS.

Active Vault: a PulseChain address owns an “active Vault” if there is a node in the SortedVaults list with ID equal to the address, and non-zero collateral is recorded on the Vault for that address.

Closed Vault: a Vault that was once active, but now has zero debt and zero collateral recorded on it, and there is no node in the SortedVaults list with ID equal to the owning address.

Collateral: any asset which a borrower must provide to take out a loan. PLS is the collateral used on Liquid Loans.

Active collateral: the amount of PLS collateral recorded in a Vault.

Active debt: the amount of USDL debt recorded in a Vault.

Entire collateral: the sum of a Vault’s active collateral plus its pending collateral rewards accumulated from distributions.

Entire debt: the sum of a Vault’s active debt plus its pending debt rewards accumulated from distributions.

Nominal collateralization ratio (nominal ICR, NICR): a Vault's nominal ICR is its entire collateral (in PLS) multiplied by 100e18 and divided by its entire debt.

Total active collateral: the sum of active collateral over all Vaults. Equal to the PLS in the ActivePool.

Total active debt: the sum of active debt over all Vaults. Equal to the USDL in the ActivePool.

Total defaulted collateral: the total PLS collateral in the DefaultPool

Total defaulted debt: the total USDL debt in the DefaultPool

Entire system collateral: the sum of the collateral in the ActivePool and DefaultPool

Entire system debt: the sum of the debt in the ActivePool and DefaultPool

Critical collateralization ratio (CCR): 150%. When the TCR is below the CCR, the system enters Recovery Mode.

Borrower: an externally-owned account or contract that locks collateral in a Vault and issues USDL tokens to their own address. They “borrow” USDL tokens against their PLS collateral.

Depositor: an externally owned account or contract that has assigned USDL tokens to the Stability Pool, in order to earn returns from liquidations, and receive LOAN token rewards.

Redemption: the act of swapping USDL tokens with the system, in return for an equivalent value of PLS. Any account with a USDL token balance may redeem them, whether or not they are a borrower.

When USDL is redeemed for PLS, the PLS is always withdrawn from the lowest collateral Vaults, in ascending order of their collateralization ratio. A redeemer can not selectively target Vaults with which to swap USDL for PLS.

Repayment: when a borrower sends USDL tokens to their own Vault, reducing their debt, and increasing their collateralization ratio.

Retrieval: when a borrower with an active Vault withdraws some or all of their PLS collateral from their own Vault, either reducing their collateralization ratio, or closing their Vault (if they have zero debt and withdraw all their PLS)

Liquidation: the act of force-closing an undercollateralized Vault and redistributing its collateral and debt. When the Stability Pool is sufficiently large, the liquidated debt is offset with the Stability Pool, and the PLS is distributed to depositors. If the liquidated debt can not be offset with the Pool, the system redistributes the liquidated collateral and debt directly to the active Vaults with >110% collateralization ratio.

Liquidation functionality is permissionless and publicly available – anyone may liquidate an undercollateralized Vault, or batch liquidate Vaults in ascending order of collateralization ratio.

Collateral Surplus: The difference between the dollar value of a Vault's PLS collateral, and the dollar value of its USDL debt. In a full liquidation, this is the net gain earned by the recipients of the liquidation.

Offset: cancellation of liquidated debt with USDL in the Stability Pool, and assignment of liquidated collateral to Stability Pool depositors, in proportion to their deposit.

Redistribution: assignment of liquidated debt and collateral directly to active Vaults, in proportion to their collateral.

Pure offset: when a Vault's debt is entirely canceled with USDL in the Stability Pool, and all of it's liquidated PLS collateral is assigned to Stability Providers.

Mixed offset and redistribution: When the Stability Pool USDL only covers a fraction of the liquidated Vault's debt. This fraction of debt is cancelled with USDL in the Stability Pool, and an equal fraction of the Vault's collateral is assigned to depositors. The remaining collateral and debt is redistributed directly to active Vaults.

Gas compensation: A refund, in USDL and PLS, automatically paid to the caller of a liquidation function, intended to at least cover the gas cost of the transaction. Designed to ensure that liquidators are not dissuaded by potentially high gas costs.

Debt In Front (DIF): Represents the cumulative total value of USDL debt of all Vaults that have a lower collateral ratio than a specific Vault's individual collateral ratio position. This value can be useful for determining a Vault's redemption risk, since the riskiest Vaults (Vaults with the lowest collateralization ratio in the protocol at the time of redemption) are the ones that are redeemed first.