🙌Borrowing Stablecoin
Last updated
Last updated
Goku Money 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 collateral assets (e.g. wETH, TIA, USDC, USDT, and more) to have liquid funds, you can use the protocol to lock up your collateral asset, borrow against the collateral to withdraw GAI, and then repay your loan at a future date. GAI Contract Address: 0xcd91716ef98798A85E79048B78287B13ae6b99b2
Using ETH as an example for the collateral asset: Borrowers speculating on future Ether price increases can use the protocol to leverage their Ether positions up to multiple times, increasing their exposure to price changes. This is possible because GAI can be borrowed against Ether, sold on the open market to purchase more Ether — rinse and repeat.*
Note: This is not a recommendation for how to use Goku Money. Leverage can be risky and should be used only by those with experience.
Collateral is any asset which a borrower must provide to take out a loan, acting as a security for the debt.
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 GAI 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, Goku Money instead opts for a fully decentralized and direct feedback mechanism via one-off fees.
To borrow you must open a Vault and deposit a certain amount of collateral (e.g. ETH) to it. Then you can draw GAI up to a collateral ratio of minimum collateral ratio. A minimum debt of 100 GAI is required.
A Vault is where you take out and maintain your loan. Each Vault is linked to an EVM address and each address can have just one Vault per collateral.
Vaults maintain two balances: one is an asset (e.g. ETH) acting as collateral and the other is a debt denominated in GAI. You can change the amount of each by adding collateral or repaying debt. As you make these balance changes, your Vault's collateral ratio changes accordingly.
You can close your Vault at any time by fully paying off your debt.
Every time you draw GAI from your Vault, 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 10 GAI Liquidation Reserve charge will be applied as well, but returned to you upon repayment of debt.
The borrowing fee is added to the debt of the Vault 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 wants to receive 4,000 GAI to their wallet. Being charged a borrowing fee of 20.00 GAI, the borrower will incur a debt of 4,030 GAI after the Liquidation Reserve and issuance fee are added.
Loans issued by the protocol do not have a repayment schedule. You can leave your Vault open and repay your debt any time, as long as you maintain a collateral ratio above the minimum collateral ratio for the corresponding asset.
This is the ratio between the Dollar value of the collateral in your Vault and its debt in GAI. The collateral ratio of your Vault will fluctuate over time as the price of the collateral asset changes. You can influence the ratio by adjusting your Vault's collateral and/or debt — i.e. adding more collateral or paying off some of your debt.
Taking ETH as a collateral example: Let’s say the current price of ETH is $3,000 and you decide to deposit 10 ETH. If you borrow 10,000 GAI, then the collateral ratio for your Vault would be 300%.
((10ETH ∗ $3000)/10000 GAI)∗100%=300%
If you instead took out 25,000 GAI that would put your ratio at 120%.
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 differently for different asset (i.e. 110% for ETH). So if your Vault has a debt 10,000 GAI, you would need at least $11,000 worth of ETH posted as collateral to avoid being liquidated.
To avoid liquidation during Recovery Mode, it is recommended to keep ratio comfortably above 30% or 40% + minimum collateral ratio (i.e. 150% for ETH).
ETH - 110%
TIA - 130%
USDT - 102%
USDC - 102%
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. Taking ETH and MCR = 110% as an example, a liquidation would result in a net loss of 9.09% (= 100% * 10 / 110) of your collateral’s Dollar value.
When you open a Vault and draw a loan, 10 GAI is set aside as a way to compensate gas costs for the transaction sender in the event your Vault being liquidated. The Liquidation Reserve is fully refundable if your Vault is not liquidated, and is given back to you when you close your Vault by repaying your debt. The Liquidation Reserve counts as debt and is taken into account for the calculation of a Vault's collateral ratio, slightly increasing the actual collateral requirements.
By making liquidation instantaneous and more efficient, Goku Money needs less collateral to provide the same security level as similar protocols that rely on lengthy auction mechanisms to sell off collateral in liquidations.
You can sell the borrowed GAI on the market for the corresponding asset and use the latter to top up the collateral of your Vault. That allows you to draw and sell more GAI, and by repeating the process you can reach the desired leverage ratio.
Assuming perfect price stability (1 GAI = $1), the maximum achievable leverage ratio is 11x for an asset with MCR = 110%. It is given by the formula:
maximum leverage ratio = MCR / (MCR−100%), where MCR is the Minimum Collateral Ratio.
If Vaults 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.
