Borrowing
Note: To facilitate the elaboration of how it works, we will use the AVAX collateral as an example, other collateral works the same as it.

## Why would I use Stabilize for borrowing?

Stabilize protocol offers interest-free loans and is more capital efficient than other borrowing systems (i.e. less collateral is needed for the same loan). Instead of selling AVAX to have liquid funds, you can use the protocol to lock up your AVAX, borrow against the collateral to withdraw U.AVAX, and then repay your loan at a future date.
For example: Borrowers speculating on future AVAX price increases can use the protocol to leverage their AVAX positions up to 11 times, increasing their exposure to price changes. This is possible because U.AVAX can be borrowed against AVAX, sold on the open market to purchase more AVAX — rinse and repeat.*
*Note: This is not a recommendation for how to use Stabilize. Leverage can be risky and should be used only by those with experience.

## What do you mean by collateral?

Collateral is any asset which a borrower must provide to take out a loan, acting as a security for the debt. Currently, Stabilize supports mutiple crypto-assets as collateral.

## How can the protocol offer interest-free borrowing?

The protocol charges one-time borrowing and redemption fees that algorithmically adjust based on the last redemption time. For example: If more redemptions are happening (which means U.AVAX is likely trading at less than 1 USD), the borrowing fee would continue to increase, discouraging borrowing.
Other systems (e.g. MakerDAO) require variable interest rates to make borrowing more or less favorable, but do so implicitly since borrowers would not feel the impact upfront. Given that this also needs to be managed via governance, Stabilize instead opts for a fully decentralized and direct feedback mechanism via one-off fees.

## How can I borrow with Stabilize?

To borrow you must open a Trove and deposit a certain amount of collateral (AVAX) to it. Then you can draw U.AVAX up to a collateral ratio of 110%. A minimum debt of 200.00 U.AVAX is required.

## What is a Trove?

A Trove is where you take out and maintain your loan. Each Trove is linked to an AVAX address and each address can have just one Trove. If you are familiar with Vaults or CDPs from other platforms, Troves are similar in concept.
Troves maintain two balances: one is an asset (AVAX) acting as collateral and the other is a debt denominated in U.AVAX. You can change the amount of each by adding collateral or repaying debt. As you make these balance changes, your Trove’s collateral ratio changes accordingly.
You can close your Trove at any time by fully paying off your debt.

## Do I have to pay fees as a borrower?

Every time you draw U.AVAX from your Trove, a one-off borrowing fee is charged on the drawn amount and added to your debt. Please note that the borrowing fee is variable (and determined algorithmically) and has a minimum value of 0.5% under normal operation. The fee is 0% during Recovery Mode. A 20 U.AVAX Liquidation Reserve charge will be applied as well, but returned to you upon repayment of debt.

## How is the borrowing fee calculated?

The borrowing fee is added to the debt of the Trove and is given by a baseRate . The fee rate is confined to a range between 0.5% and 5% and is multiplied by the amount of liquidity drawn by the borrower.
For example: The borrowing fee stands at 0.5% and the borrower draws 4,000 U.AVAX from his open Trove. Being charged a fee of 20.00 U.AVAX, the borrower will obtain 4,000.00 U.AVAX
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## When do I need to pay my loan back?

Loans issued by the protocol do not have a repayment schedule. You can leave your Trove open and repay your debt any time, as long as you maintain a collateral ratio of at least 110%.

## What is the collateral ratio?

This is the ratio between the Dollar value of the collateral in your Trove and its debt in U.AVAX. The collateral ratio of your Trove will fluctuate over time as the price of AVAX changes. You can influence the ratio by adjusting your Trove’s collateral and/or debt — i.e. adding more AVAX collateral or paying off some of your debt.
The minimum collateral ratio (or MCR for short) is the lowest ratio of debt to collateral that will not trigger a liquidation under normal operations (aka Normal Mode). This is a protocol parameter that is set to 110%. So if your Trove has a debt 10,000 U.AVAX, you would need at least $11,000 worth of AVAX posted as collateral to avoid being liquidated. To avoid liquidation during Recovery Mode, it is recommended to keep ratio comfortably above 150% (e.g. 200% or better 250%). ## What happens if my Trove is liquidated? You lose your collateral as your debt is paid off through liquidation, i.e. you will no longer be able to retrieve your collateral by repaying your debt. A liquidation thus results in a net loss of 9.09% (= 100% * 10 / 110) of your collateral’s Dollar value. ## What is the Liquidation Reserve? When you open a Trove and draw a loan, 20 U.AVAX is set aside as a way to compensate gas costs for the transaction sender in the event your Trove being liquidated. The Liquidation Reserve is fully refundable if your Trove is not liquidated, and is given back to you when you close your Trove by repaying your debt. The Liquidation Reserve counts as debt and is taken into account for the calculation of a Trove's collateral ratio, slightly increasing the actual collateral requirements. ## How can you offer a collateral ratio as low as 110%? By making liquidation instantaneous and more efficient, Stabilize needs less collateral to provide the same security level as similar protocols that rely on lengthy auction mechanisms to sell off collateral in liquidations. ## How can I take advantage of leverage? You can sell the borrowed U.AVAX on the market for AVAX and use the latter to top up the collateral of your Trove. That allows you to draw and sell more U.AVAX, and by repeating the process you can reach the desired leverage ratio. Assuming perfect price stability (1 U.AVAX =$1), the maximum achievable leverage ratio is 11x. It is given by the formula:
$maximum\ leverage \ ration = \frac{MCR}{(MCR - 100\%)}$
maximum leverage ratio MCR ​where MCR is the Minimum Collateral Ratio.

## Why did the collateral and debt of my Trove increase without my intervention?

If Troves are liquidated and the Stability Pool is empty (or gets emptied due to the liquidation), every borrower will receive a portion of the liquidated collateral and debt as part of a redistribution process.