CDPs

Collateralized Debt Position

This documentation is a work in progress!

A collateralized debt position (CDP) is a system introduced by MakerDAO team with their decentralized stablecoin DAI.

Generally speaking it is a overcollateralized lending contract where borrowers deposit collateral and borrow assets against the deposited collateral. The contract itself acts as a counterparty when borrowers open a debt position.

Borrowers using these CDP's cannot withdraw their collateral if it takes the CDP below the minimum collateralization ratio set in the contract.

CDPs Act As Cross Positions In Kopio project

One or more collaterals back each CDP and borrowers can take multiple debt positions on a single CDP. They effectively act as cross-margined positions with many-to-many collateralization as opposed to 1-to-1 positions also known as isolated margin.

CDP Example

Example

• Collateral DAI has a cFactor of 1. Oracle price $1

• Collateral wBTC has a cFactor of 0.8. Oracle price $15000

• krAsset krETH has a krFactor of 1.1. Oracle price $1000

• krAsset krQQQ has a krFactor of 1. Oracle price $200

• Protocol MCR is 140%

Bob deposits 1500 DAI and 0.1 wBTC as collateral

Calculating the deposit values

1. DAI: $1500 * 1 = $1500

2. wBTC: $150 * 0.8 = $120

Bob's total collateral value is $1620

Bob sends a transaction to mint 1 krETH

Calculating the debt value

1. krETH: $1000 * 1.1 = $1100

Total collateral Bob needs to cover this mint:

$1100 * 140% = $1540

As $1540 is less than $1620. Bob is a able to mint 1 krETH

Bob wants to mint 1 krQQQ

Calculating the debt value

1. krQQQ: $200 * 1 = $200

Total collateral value Bob needs to cover this mint:

($1100 + $200) * 140% = $1820

We can see that Bob has insufficient collateral ($1620) to cover the mint so the transaction would fail.

Overcollateralization

In simple terms this means that for any amount of Kopio Asset to exist it must be backed by a Collateral Asset deposit of equal or greater value.

The protocol needs to stay solvent, avoiding scenario where any CDP has a Deposit Value less than its Debt Value. Protocol ensures this by only allows borrows up to a portion of the collateral provided, enforced by MCR, kFactor and cFactor. As asset valuations change over time, the final backstop for solvency is liquidations.

Collateral/Deposit Value

The quantity, price, and the asset's collateral factor are used to determine the deposit value (v) of an individual collateral deposit. Deposit value enables the protocol to properly weight different collaterals and calculate the total deposit value of the assets in real-time.

Given a user’s collateral a, oracle price $P_a$, quantity $Q_a$, and collateral factor $CF_a$, the deposit value $v_a$ can be represented as follows:

$$v_a = Q_a*P_a*CF_a$$

Example

If Alice has deposited 1,000 USDC, oracle price of 1 USDC = $1.01, CF for USDC = 0.99, then the deposit value can be calculated as follows:

$$v_{USDC} = 1,000 * \$1.01 * 0.99 = \$990$$

Total Deposit Value

For multiple collaterals, the total deposit value (V) is calculated by adding the deposit values of all the individual assets deposited.

Given n collaterals, a user’s total deposit value V is calculated as follows:

$$V = \sum_{i=i}^n v_i = \sum_{i=1}^n Q_i * P_i * CF_i$$

Example

If Alice has deposited 1,000 USDC (v = $990), 1 ETH (v = $2,734.01), and 600 OP (v = $1,072.55), then the total deposit value is:

$$V = \$990 + \$2,734.01 + \$1,072.55 = \$4,796.56$$

Debt Value

The quantity, price, and kFactor are used to determine the debt value (d) incurred by borrowing a Kopio Asset.

Given a borrower’s krAsset b, oracle price $P_b$, quantity $Q_b$, and krFactor $krFactor_b$, the debt value $d_b$ is calculated as follows:

$$d_b = Q_b * P_b * kFactor_b$$

Example

Alice wants to borrow 1 krTSLA, Oracle price of 1 TSLA = $1,000, kFactor for TSLA = 1.05, then the debt is:

$$d_{krTSLA} = 1 * \$1,000 * 1.05 = \$1,050$$

Total Debt Value

For multiple Kopio Assets borrowed, the total debt value (D) is calculated by combining the debt values of each asset.

Given n krAssets, total debt D is:

$$D = \sum_{i=i}^n d_i = Q_i * P_i * kFactor_i$$

Example

if Alice has borrowed 1 krTSLA (d = $1,050), 1 krAAPL (d = $180), and 1.2 krIAU (d = $48), then the total debt is:

$$D = \$1,050 + \$180 + \$48 = \$1,278$$

Example

If Alice has borrowed 1 krTSLA (d = $1,050), 1 krAAPL (d = $180), and 1.2 krIAU (d = $48), then the total debt is:

$$D = \$1,050 + \$180 + \$48 = \$1,278$$

Collateralization Ratio

Collateralization Ratio (CR) for an account is obtained by dividing the combined collateral value V with outstanding combined debt value D.

$$CR = \frac{V}{D}$$

If Alice’s total deposit value is $4,806.46 and her total debt is $1,278, then her collateral ratio is

$$CR = \frac{\$4,806.46} {\$1,278} = 3.7609 = 376.09\%$$

Minimum Collateralization Ratio

Core risk mitigation of a CDP is the minimum collateralization ratio _(_MCR). It is the minimum collateralization ratio that allows taking on new debt.

If a CDP's collateralization ratio is under the MCR It does not mean it can be liquidated.

This is decided by the Liquidation Threshold instead.

The MCR is used to calculate a minimum collateral value for that a CDP needs to back up it's total debt value.

Minimum collateral value required

$(cValue_0 + ...+ cValue_n) * MCR$

Liquidation Threshold

Liquidation Threshold (LT) is a protocol parameter which holds the value for absolute minimum collateralization ratio. If the Collateralization Ratio of an account is lower than the Liquidation Threshold, it can be liquidated by the liquidation functions in the protocol.

The liquidation threshold is always lower or equal to the MCR. These two values are separate to allow creation of a safety window before accounts are in danger of being liquidated.

Health Factor

Collateralization Ratio converted to a percentage.

How borrowing works in Kopio project

How repayments work in Kopio project

How Withdrawals work in Kopio project