Depositing Collateral and Minting

Minting

Users can open a vault and mint USDOX by depositing supported collateral assets. A minimum debt of 100 USDOX is required to open a vault, which includes a 50 USDOX Liquidation Reserve. The maximum borrowing capacity is determined based on the collateral ratio, which must be maintained above the required threshold to avoid liquidation.

Vault

A vault is a loan secured against a specific type of collateral. Each vault is associated with a unique blockchain address, and each address can hold only one vault per collateral type. This structure is similar to CDPs found in other decentralized finance platforms.

Vaults track two primary balances:

• Collateral Balance – The amount of deposited assets securing the debt

• USDOX Debt Balance – The total borrowed USDOX, which must be repaid to close the vault

Users can manage their vaults by adding or removing collateral and increasing or repaying their debt. The collateral ratio fluctuates based on these actions and the price movement of the collateral assets.

A vault can be closed at any time by fully repaying its outstanding debt.

Borrowing Fees

Borrowing fees may apply when minting USDOX. These fees vary based on market conditions and protocol parameters.

Loan Duration

Loans issued through the CDP Vault have no fixed repayment schedule. Users can repay their debt at any time, provided they meet the required collateral ratio.

Vault Collateral Ratio

The collateral ratio represents the ratio between the USD value of the deposited collateral and the outstanding USDOX debt in a vault. As the price of collateral fluctuates, this ratio changes. Users can maintain a healthy ratio by adding collateral or repaying debt.

For example:

• If wETH is priced at $2,000 and a user deposits 30 wETH, taking out a loan of 30,000 USDOX, the resulting collateral ratio is 200%.

• If the price of wETH drops to $1,000, the collateral ratio decreases to 100%, increasing the risk of liquidation.

Minimum Collateral Ratio (MCR)

The Minimum Collateral Ratio (MCR) is the lowest allowable ratio required to avoid liquidation under normal conditions. This parameter is set by the protocol for each collateral type.

For example, if the MCR is set at 120%, a vault with 20,000 USDOX in debt must maintain at least $24,000 worth of collateral to remain solvent.

To reduce liquidation risks, it is recommended to maintain a collateral ratio above 150%, ideally around 200% to 250%, particularly during volatile market conditions.

Multiple Collateral Types

Nexus’ CDP Vault supports multiple collateral types, allowing users to open separate vaults for each asset. Some key considerations:

• Collateral types are segregated – The Total Collateral Ratio (TCR) is calculated independently for each asset.

• Collateral types have different protocol parameters – Borrowing costs, fees, and risk thresholds may vary.

• Rewards and incentives may differ based on the collateral used.

Vault Liquidations

If a vault’s collateral ratio falls below the liquidation threshold, the vault becomes eligible for liquidation. During liquidation, a portion of the collateral is sold to repay the vault’s debt, and the owner loses access to the collateral that is used for repayment.

Liquidation results in a net loss of 16.67% of the collateral's USD value relative to the minimum collateral ratio.

16.67% = 100% * 20 / 120

Liquidation Reserve

When a vault is opened, 50 USDOX is set aside as a Liquidation Reserve. This reserve:

• Covers the gas costs incurred by liquidators who process undercollateralized vaults.

• Is fully refundable if the user repays their debt and closes the vault.

• Is included as part of a vault’s debt, meaning it affects the collateral ratio and overall borrowing requirements.

Redemptions

When USDOX is redeemed, collateral is taken from vaults with the lowest collateral ratio for that asset type, even if the vault is above the minimum threshold. If a user’s vault has the lowest collateral ratio, they may lose a portion of their collateral, but their debt will be reduced proportionally.

This ensures that USDOX remains fully backed while maintaining the protocol’s overall stability.