Borrow
Last updated
Last updated
Borrow is the core feature of Piggy Protocol which helps users to add $BNB to their own PiggyBank as collateral and borrow $PUSD which is Piggy Stablecoin. Collateral is any asset which a borrower must provide to take out a loan, acting as a security for the debt. Currently, Piggy only supports $BNB as collateral. The protocol will only charge one time fee when you borrow, there won't be more interests accrued to the loan in the future.
Step1: Click the "Borrow & Repay" on the sidebar menu. You will find your current collateral and debt overview.
Step2: Click Add/Withdraw as you want. Then fill the amount you want to Add/Withdraw.
Step3: Confirm all the information and your collateral will change.
Step1: Click the "Borrow & Repay" on the sidebar menu. You will find your current collateral and debt overview.
Step2: Click borrow/repay as you want. Then fill the amount you want to borrow/repay.
Step3: Confirm all the information and your debt will change.
Piggy protocol offers interest-free loans and is more capital efficient than other borrowing systems (i.e. less collateral is needed for the same loan). Instead of selling $BNB to have liquid funds, you can use the protocol to lock up your $BNB, borrow against the collateral to withdraw $PUSD, and then repay your loan at a future date.
The protocol charges one-time borrowing and redemption fees that algorithmically adjust based on the last redemption. For example: If more redemptions are happening (which means $PUSD is likely trading at less than 1 USD), the borrowing fee would continue to increase, discouraging borrowing.
Other systems (e.g. Venus) require variable interest rates to make borrowing more or less favorable, but do so implicitly since borrowers would not feel the impact upfront. Given that this also needs to be managed via governance, Piggy instead opts for a fully decentralized and direct feedback mechanism via one-off fees.
Every time you draw $PUSD from your PiggyBank, a one-off borrowing fee is charged on the drawn amount and added to your debt. Please note that the borrowing fee is variable (and determined algorithmically) and has a minimum value of 0.5% under normal operation. The fee is 0 during Recovery Mode. A 20 $PUSD Liquidation Reserve charge will be applied as well, but returned to you upon repayment of debt.
The borrowing fee is added to the debt of the PiggyBank and is given by a base rate. The fee rate is confined to a range between 0.5% and 5% and is multiplied by the amount of liquidity drawn by the borrower.
For example: The borrowing fee stands at 0.5% and the borrower draws 400 $PUSD from his open PiggyBank. Being charged a fee of 1.89 $PUSD(0.5%=fee/(400-20-fee), this is how to calculate the fee charged, 20 is the gas compensation), the borrower will obtain 378.11 $PUSD after the Liquidation Reserve and issuance fee are deducted.
Loans issued by the protocol do not have a repayment schedule. You can leave your PiggyBank open and repay your debt any time, as long as you maintain a collateral ratio of at least 110%
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This is the ratio between the Dollar value of the collateral in your PiggyBank and its debt in $PUSD. The collateral ratio of your PiggyBank will fluctuate over time as the price of $BNB changes. You can influence the ratio by adjusting your PiggyBank’s collateral and/or debt — i.e. adding more $BNB collateral or paying off some of your debt.
For example: Let’s say the current price of $BNB is $3,000 and you decide to deposit
10 $BNB. If you borrow 10,000 $PUSD, then the collateral ratio for your PiggyBank would be
300%, If you instead took out 25,000 $PUSD that would put your ratio at 120%.
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The minimum collateral ratio (or MCR for short) is the lowest ratio of debt to collateral that will not trigger a liquidation under normal operations (aka Normal Mode). This is a protocol parameter that is set to 110%. So if your PiggyBank has a debt 10,000 $PUSD, you would need at least $11,000 worth of $BNB posted as collateral to avoid being liquidated.
To avoid liquidation during Recovery Mode, it is recommended to keep the ratio above 150%.
You lose your collateral as your debt is paid off through liquidation, i.e. you will no longer be able to retrieve your collateral by repaying your debt. A liquidation thus results in a net loss of 9.09% (= 100%*10/100) of your collateral’s Dollar value.
When you open a PiggyBank and draw a loan, 20 $PUSD is set aside as a way to compensate gas costs for the transaction sender in the event your PiggyBank being liquidated. The Liquidation Reserve is fully refundable if your PiggyBank is not liquidated, and is given back to you when you close your PiggyBank by repaying your debt. The Liquidation Reserve counts as debt and is taken into account for the calculation of a PiggyBank's collateral ratio, slightly increasing the actual collateral requirements.
When $PUSD is redeemed, the $BNB provided to the redeemer is allocated from the PiggyBank(s) with the lowest collateral ratio (even if it is above 110%). If at the time of redemption you have the PiggyBank with the lowest ratio, you will give up some of your collateral, but your debt will be reduced accordingly.
The USD value by which your $BNB collateral is reduced corresponds to the nominal $PUSD amount by which your PiggyBank’s debt is decreased. You can think of redemptions as if somebody else is repaying your debt and retrieving an equivalent amount of your collateral. As a positive side effect, redemptions improve the collateral ratio of the affected PiggyBanks, making them less risky.
Redemptions that do not reduce your debt to 0 are called partial redemptions, while redemptions that fully pay off a PiggyBank’s debt are called full redemptions. In such a case, your PiggyBank is closed, and you can claim your collateral surplus and the Liquidation Reserve at any time.
Let’s say you own a PiggyBank with 2 $BNB collateralized and a debt of 3,200 $PUSD. The current price of $BNB is $2,000. This puts your collateral ratio (CR) at 125% (= 100% * (2 * 2,000) / 3,200).
Let’s imagine this is the lowest CR in the Piggy system and look at two examples of a partial redemption and a full redemption:
Example of a partial redemption
Somebody redeems 1,200 $PUSD for 0.6 $BNB and thus repays 1,200 $PUSD of your debt, reducing it from 3,200 $PUSD to 2,000 $PUSD. In return, 0.6 $BNB, worth $1,200, is transferred from your PiggyBank to the redeemer. Your collateral goes down from 2 to 1.4 $BNB, while your collateral ratio goes up from 125% to 140%(= 100% * (1.4 * 2,000) / 2,000).
Example of a full redemption
Somebody redeems 6,000 $PUSD for 3 $BNB. Given that the redeemed amount is larger than your debt minus 20 $PUSD (set aside as a Liquidation Reserve), your debt of 3,200 $PUSD is entirely cleared and your collateral gets reduced by $3,180 of $BNB, leaving you with a collateral of 0.41 BNB (= 2 - 3,180 / 2,000).
By making liquidation instantaneous and more efficient, Piggy needs less collateral to provide the same security level as similar protocols that rely on lengthy auction mechanisms to sell off collateral in liquidations.
