Borrowing

ZolTAO is a decentralized finance (DeFi) protocol that allows users to borrow interest-free loans with efficient collateral. In this document, we will discuss the key features and benefits of using ZolTAO for borrowing, as well as important terms, processes, and considerations.

1. Advantages of Borrowing with ZolTAO

ZolTAO offers several advantages over other borrowing systems, including interest-free loans and capital efficiency. This allows borrowers to use less collateral for the same loan amount. Borrowers can also leverage their Ether (ETH) positions up to 11 times, increasing their exposure to price changes. However, it is essential to note that leverage can be risky and should only be used by experienced individuals.

1. Collateral and Supported Assets

Currently, ZolTAO only accepts ETH as collateral. Collateral is an asset provided by the borrower to secure a loan.

1. Interest-Free Borrowing and One-Time Fees

ZolTAO offers interest-free borrowing by charging one-time borrowing and redemption fees that adjust algorithmically based on the last redemption time. This creates a direct feedback mechanism that does not require governance, making the protocol fully decentralized.

1. Borrowing Process

To borrow with ZolTAO, users must open a Trove and deposit ETH as collateral. They can then draw dCNY up to a collateral ratio of 110%. A minimum debt of 1,375.68 dCNY (~ $200) is required. A Trove is an account where users manage their loans, collateral, and debt.

1. Fees and Charges

Borrowers must pay a one-off borrowing fee on the drawn amount, which is added to their debt. The fee is variable (minimum of 0.5%) and determined algorithmically. A Liquidation Reserve charge of 1,375.68 dCNY (~ $200) is also applied, but this is returned upon repayment of debt.

1. Loan Repayment and Collateral Ratio

ZolTAO loans do not have a repayment schedule, and borrowers can repay their debt anytime, as long as they maintain a collateral ratio of at least 110%. The collateral ratio is the ratio between the Dollar value of the collateral and the debt in dCNY.

1. Liquidation and Recovery Mode

If a borrower's collateral ratio falls below the minimum collateral ratio (MCR) of 110%, their Trove may be liquidated, resulting in a loss of collateral. It is recommended to keep a collateral ratio above 150% to avoid liquidation during Recovery Mode.

1. Redemptions and Partial Redemptions

When dCNY is redeemed, ETH is allocated from the Trove(s) with the lowest collateral ratio. This can result in the reduction of the borrower's collateral and debt. If a Trove's debt is fully paid off through redemption, the Trove is closed, and the borrower can claim their collateral surplus and Liquidation Reserve.

1. Efficient Collateral and Leverage

ZolTAO achieves efficient collateral by making liquidation instantaneous and more efficient than other protocols. This allows users to take advantage of leverage by selling borrowed dCNY for ETH and using it as collateral, repeating the process to reach the desired leverage ratio.

1. Redistribution Process

If Troves are liquidated and the Stability Pool is empty, every borrower will receive a portion of the liquidated collateral and debt through a redistribution process.

ZolTAO offers a unique borrowing experience with interest-free loans and efficient collateral, making it an attractive option for borrowers in the DeFi space. By understanding the process, fees, and risks associated with borrowing on the platform, users can make informed decisions and take advantage of the benefits provided by ZolTAO. It is essential, however, to always consider the risks and market fluctuations when leveraging positions and borrowing on any DeFi platform. Remember that leveraging can be risky and should only be undertaken by those with experience in the space. By carefully managing your Trove and staying informed about the platform's parameters, borrowers can make the most of the opportunities offered by ZolTAO.