Guide on New Vault Rules for Decentralized Loans

DeFiChain -

After the Fort Canning Epilogue update, 2 new rules will apply to loans:

  1. DUSD loans backed by any amount of DUSD collateral will be subjected to 50% DFI requirements in the vault
  2. The collateralization factor of DUSD will be adjusted from 100% to 120%

Let’s deep dive into the mechanisms of these rules, and what it means for the DeFiChain community.

50% DFI Requirements for DUSD Loans Containing DUSD Collateral

DUSD as collateral was initially proposed as part of DFIP-2112-A to allow for increased DUSD utility and shorting of stocks without exposure to volatility of cryptocurrency. This was a great initiative initially when there was no incentive to be minting DUSD by backing DUSD. This however changed once the DUSD loan incentive was introduced.

To limit circular DUSD loans, and concurrently shore up demand for DFI, all DUSD loans that are backed by any amount of DUSD collateral will be required to maintain at least 50% of their collateral in the form of DFI. Here are some scenarios to facilitate your understanding:

Users with no existing DUSD loans just need to have 50% DFI in the vault if they intend to create a DUSD loan containing DUSD as collateral. For users with existing DUSD loans containing DUSD collateral, if the vault does not fulfill the 50% DFI requirements, users will not be able to create a new loan or withdraw any amount from existing loans. To resolve this, users have two options:

  1. Add DFI collateral so that it makes up 50% of the collateral value
  2. Payback the DUSD loan with all the existing DUSD collateral in the vault

The infographic summarizes when the 50% DFI requirements apply, and how it affects users with existing DUSD loans containing DUSD collateral.

What do these changes translate to on the DeFiChain Light Wallet

For users of DeFiChain Light Wallet whose DUSD loans are backed by DUSD collateral, if these loans do not meet the 50% DFI requirements, they can

  1. Add DFI collateral via the “Edit Collateral” button, or
  2. Payback the DUSD loan with all the existing DUSD collateral in the vault via the “Payback with DUSD Collateral” button

The collateralization factor of DUSD will be adjusted from 100% to 120%

To provide increased value to DUSD, the collateralization factor of DUSD will be adjusted from 100% to 120%. For instance, if $100 DUSD was provided as collateral for a loan, that would be the equivalent of $120 worth of collateral. In layman terms, the value of DUSD has increased by 20% in the context of loans.

Conclusion

The new vault rules will undoubtedly lead to enhanced stability of DUSD while also bringing about an increase in demand for DFI. In general, Fort Canning Epilogue will be a key and positive update for the DeFiChain community.

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