TrenBox
What is TrenBox?
The TrenBox contract acts as a secure container where you can deposit collateral to borrow trenUSD and manage your loan. Each TrenBox is linked to an Ethereum address, and each address can have only one TrenBox per collateral type. If you're familiar with Vaults or CDPs from other platforms, TrenBoxes function similarly.
TrenBoxes maintain two balances: one for the collateral asset and another for the debt, which is denominated in TrenUSD. You can adjust these balances by adding collateral or repaying debt. As you make these changes, your TrenBox's Loan-to-Value (LTV) ratio will be updated accordingly.
You can close your TrenBox at any time by fully paying off your debt.
Loan to Value (LTV)
LTV represents the ratio of a loan amount to the value of the collateral securing the loan, expressed as a percentage. To calculate the loan to value for a TrenBox the formula below is used
Max LTV
Max LTV represents the maximum amount a user can borrow based on the value of a given collateral. The Max LTV is specific to each collateral asset offered on Tren Finance.
If the market value of the collateral decreases, the LTV ratio increases because the same loan amount is now backed by less valuable collateral. This can cause the LTV to surpass the Max LTV
While it is not recommended to exceed the Max LTV for a TrenBox, the position remains solvent as long as the LTV is below the liquidation threshold (LT).
Max LTV can also be described as the borrowing power of a position, providing a clear indication of how much can be borrowed against a specific collateral. In essence, Max LTV and borrowing power are interchangeable terms for determining the borrowing capacity of a given collateral.
Liquidation Threshold (LT)
The liquidation threshold is a critical parameter in Tren Finance, determining the maximum value that your loan can reach before your collateral becomes eligible for liquidation. Each asset within the protocol has its own ratio for this threshold, and this ratio is established through governance decisions.
When a position gets liquidated closer to the threshold, liquidators are rewarded with a higher liquidation fee. This incentive structure is in place to encourage quick action in liquidating positions that approach or exceed the Liquidation Threshold. If borrowers were allowed to accumulate debt beyond the value of their collateral, it would lead to a state of under-collateralization. This scenario is problematic because it increases the risk of bad debt accumulating within the pool, which can have adverse consequences for the protocol
The difference between the LTV ratio and the liquidation threshold acts as a safety margin to protect the borrower. This margin ensures that there is sufficient collateral to cover the outstanding debt even if the value of the collateral declines slightly. It prevents immediate liquidation upon minor market movements.
Health Factor (HF)
The Health Factor serves as a visual indicator of your TrenBox, depicted by a spectrum spanning from Red to Green. When your Health Factor reaches the critical threshold of 0%, it triggers the initiation of the liquidation process. This metric is determined in real-time, taking into account your Loan-to-Value (LTV) ratio and the Liquidation Threshold (LT) for the module under which the TrenBox is opened.
Several factors can contribute to your Health Factor approaching the perilous 0% mark, including:
The value of your collateral diminishes.
You withdraw a portion of your collateral.
Additional borrowing activity on your part.
Accumulation of interest on your loan over time.
The closer your Health Factor gets to 0%, the nearer you are to facing liquidation. It's essential to vigilantly monitor the Health Factor of each of your borrow positions to ensure their stability and avoid potential liquidation.
To calculate the liquidation price, use the formula below. Note that the collateral quantity is expressed in the number of collateral tokens, while the loan value is expressed in dollars.
Minimum Debt
To borrow you must open a TrenBox and deposit a certain amount of collateral along with a minimum debt of 500 TrenUSD. The minimum debt ensures that each TrenBox is substantial enough to make transaction costs worthwhile for the user
Liquidation Reserve
When you open a TrenBox and draw a loan, 150 TrenUSD is set aside as a way to compensate gas costs for the transaction sender in the event of your TrenBox being liquidated. The Liquidation Reserve is fully refundable if your TrenBox is not liquidated, and is given back to you when you close your TrenBox by repaying your debt. The Liquidation Reserve counts as debt and is taken into account for the calculation of a TrenBox's LTV ratio, slightly increasing the actual collateral requirements.
Redemptions and Redistributions
The collateral and debt of a TrenBox is able to change to increase and decrease through redemptions and redistributions.
Redemption
Redemptions enable arbitragers to exchange trenUSD for collateral assets at a rate of $1, helping to maintain the $1 peg. TrenBoxes with low health factors and without redemption protection are prioritized first for redemptions, enhancing the overall stability of the protocol.
Redistribution
The collateral and debt of an active TrenBox may increase in the event of a redistribution within an isolated module. A redistribution occurs when the stability pool is empty, or a TrenBox's value is too low to effectively liquidate. Collateral and debt from a liquidated TrenBox is distributed among the active TrenBoxes within the module
What fees could I incur as a borrower?
One time fee
A borrowing fee is a charge incurred when you borrow assets, in this case, TrenUSD, using your collateral in a TrenBox. This fee is typically a percentage of the borrowed amount and is applied to compensate the protocol for the lending service and the associated risks.
The borrowing fee is charged at the time of borrowing. This means that when you create a new loan by borrowing TrenUSD against your collateral, the fee is calculated based on the amount you borrow and is added to your total debt. The specifics of the borrowing fee, such as its rate and how it is applied, can vary depending on the protocol's parameters and the specific collateral type used.
Borrowing Interest
Borrowing interest is a periodic charge applied to the outstanding debt in your TrenBox, designed to compensate the protocol for providing the loan and managing associated risks. This interest accrues over time, increasing the total amount you owe.
The interest rate a borrower faces can vary due to the support for different interest rate models within the protocol. Some modules may offer interest-free borrowing, meaning that TrenBoxes do not accrue any fees from borrowing interest.
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