Flamingo Stablecoin FUSD
We explain what FUSD is and the concepts behind it.
FUSD is a decentralized, over-collateralized USD stablecoin developed by Flamingo on the Neo N3 blockchain.
A stablecoin is a digital asset built on the blockchain that is designed to maintain a price peg at a designated price, most often $1.00.
Collateralization is the use of a valuable asset as collateral to secure a loan.
A collateralized stablecoin is a stablecoin that is entirely or almost entirely backed by collateral held in a reserve.
Because the reserve cryptocurrency may also be prone to high volatility, such stablecoins are overcollateralized — that is, the value of cryptocurrency held in reserves exceeds the value of the stablecoins issued.
If a borrower defaults on a stablecoin loan, the lender may seize and sell the asset to offset their loss. For lenders, the collateralization of assets provides a level of reassurance against default risk.
FUSD
FUSD’s value is collateralized by mainstream Neo N3 assets tradable on Flamingo — FLM, FLUND, bNEO, WBTC, and WETH. FUSD can be minted by anyone whose connected wallet holds at least one of these tokens.
The Vault
To mint FUSD, users must open a Vault. A Vault is associated with a specific collateral asset, such as FLUND. Users can then deposit the collateral asset and mint FUSD as a loan against the collateral. At the time of writing, users can open up to three Vaults — one Vault for each collateral token.
Vault owners can make partial or full repayments of their FUSD loan(s) at any time.
Interest Rates
The FUSD protocol charges interest rates depending on the collateral token:
FLM: 1%*
FLUND: 1%*
bNEO: 3%*
WBTC: 6%*
WETH: 6%*
* Simple interest (APR): based on the principal amount of a loan only and does not include compounding interest. FUSD interest rates compound on every mint/repay/maintenance operation, so the compounded interest (APY) may be slightly higher.
When a vault owner pays their loan, he interest is paid first. These FUSD are then sold (kept in circulation) and theoretically the vault owner could then buy them back from the market to repay the rest of the loan (if that vault owner was the only one using FUSD). Because of this and because the vault owner is not the only one using FUSD, there is no need to ever mint more FUSD for interest payments since there will always be circulating FUSD in the open market.
Loan-to-Value
To ensure the solvency of the protocol (the ability to pay one’s debts), FUSD can be minted at percentage of the value of the collateral asset (see table below). For example, someone who deposits $1,000 of WBTC can mint a maximum of 350 FUSD ($350 USD). This ratio ($350 / $1,000 = 35%) is called the Loan-to-Value.
Vault owners can withdraw collateral at any time, as long as it does not make the Loan-to-Value less than 50%. In order to withdraw all collateral, users must repay all outstanding FUSD he or she was loaned.
If the Loan-to-Value of a Vault becomes greater than the margin percentage (see table below)due to market movements, the Vault becomes eligible for margin maintenance. In other words, anyone can maintain a margin on any Vault by transferring FUSD if the Loan-to-Value of that vault becomes greater than the margin percentage. For example if Jack opens a Vault, Jill can maintain Jack’s margin if Jack’s Vault goes above 55% Loan-to-Value.
Up to 50% of outstanding FUSD on loan of a Vault can be repaid by a maintainer. In our above example, if we have 350 FUSD backed by $1,000 WBTC and the WBTC drops by half, we now have 350 FUSD backed by $500 fWBTC, making a Loan-to-Value of 70%. A maintainer can send 175 FUSD to receive $175 of WBTC and a 5% bonus, or a total of $183.75 of WBTC for their efforts.
Margin maintenance on Vaults incur an 8% penalty. That is, 92% of the FUSD sent by the maintainer will be burned and deducted from the Vault balance, as if it were a simple repayment. The remaining 8% will be kept by the platform. In the previous example, 161 of the 175 FUSD sent by the maintainer will be deducted from the Vault’s outstanding balance and 14 will be kept by the FUSD platform.
Vault owners can always keep track of a Vault’s Loan-to-Value percentage on the platform. We will also configure a discord bot on the Flamingo discord to help vault owners follow along there.
Disclaimer: The discord bot is just an informational source and can, at any given time, be offline or not be able, for some reason, to warn you. It can also provide wrong information. It is always your responsibility to check on your loans.
Flamingo Lend Collateral Token Interest, LTV, and Margin Maintenance
The following table shows the interest rates, LTV, and margin maintenance rates for the various collateral options of Flamingo Lend.
Loan Management in Volatile Conditions
If market conditions are very volatile and prices rise or fall rapidly, a safety mechanism in the Flamingo Lend/Vault smart contracts is triggered. The safety mechanism ensures that a malicious user cannot manipulate prices and then take out a new loan or remove collateral to such an extent that their loan becomes under-collateralized. More specifically, the safety mechanism is triggered when the prices of specific collateral vary too much between Flamingo and other major exchanges, which is common in high-volatility situations.
What does this mean for the users?
It means that in high-volatility conditions, a user might be unable to take out new loans or remove collateral from their loans until the prices between exchanges have stabilized. An example would be when the price of an asset used as collateral spikes in price, and the user wants to remove the collateral to sell the asset but cannot at that moment.
Contracts
To see the balances and reserves for each over-collateralized coin and to verify that the USD value in bNEO, FLUND FLM, WBTC and WETH is locked, see the Collateral Vault contract here. To see the current circulating supply of FUSD, see the FUSD contract here.
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