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Borrowing, redeeming and liquidations

Moria Protocol allows users to borrow the stablecoin MUSD on their own terms. Borrowers can choose and adjust the rate they are willing to pay for their loans. Borrowers will establish market rates in accordance with their individual risk tolerance without relying on governance or algorithm rate management.

Setting interest rate

Setting interest rate

You select your own interest rate for your loans. You can choose to minimize costs and actively manage risk, or set a higher interest rate for passive long-term positions

Redemption

A redemption is when a loan is paid back by a third party. When someone redeems a loan, the redeemer repays the MUSD amount and receives part of the collateral backing up the loan, equaling the loan size, while the excess collateral (overcollateral) is repaid to the initial creator of the loan. The borrowed MUSD is also kept by the initial creator of the loan. When and what loans can be redeemed are determined by the basis point oracle, general rule is that loans with the current lowest interest rate can be redeemed. Redemption is a mechanism to let MUSD keep the peg with USD.

Interest Rate: Cost and Risk

Lower Interest Rate (e.g., 0.5%)

  • Cheap borrowing
  • High redemption priority — third party may pay out loan position if redemptions happen

Higher Interest Rate (e.g., 5%)

  • Higher annual borrowing cost
  • Lower chance of being redeemed — you're more likely to keep your loan position

Liquidation

MUSD loans are backed by BCH as collateral. Moria Protocol requires 150% collateral for new loans, allowing them to go down to 120%. This let users to select their preference or capital efficiency versus safety from volatility.

If a loan's collateral ratio drops below the minimum threshold of 120%, it can be liquidated:

  • A liquidator pays off the entire loan debt (e.g., 300 MUSD)
  • They receive all the collateral (e.g., 1 BCH)
  • The borrower keeps the 300 MUSD but loses all their collateral

See also article on liquidation incentives

FAQ

What kind of collateral can I use?

You can use Bitcoin Cash (BCH)

Is there a minimum debt?

Yes, the minimum of 10 MUSD is required for borrowing.

When do I need to pay back my loan?

Loans issued by the protocol do not have a repayment schedule. You can repay your debt at any time, as long as you maintain a healthy loan (enough collateral).