# Borrowing & Liquidation

This page explains how to open a **Trove**, mint **USDHN**, and manage the main risk: **liquidation**.

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**Not investment advice** — Borrowing against crypto collateral is risky. Liquidations and losses are possible.
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## At a glance

* A **Trove** is your CDP position: collateral in, USDHN out.
* Your safety is mainly controlled by your **Collateral Ratio (CR)**.
* Minting USDHN creates a **USDHN obligation** you must repay to close.
* If CR gets too low, your Trove can be **liquidated**.
* Collateral markets are separated into **collateral branches** (risk is ring-fenced per branch).

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**Understand the obligation** — Selling or swapping the USDHN you minted does not remove your debt. To close the Trove, you will need to repay USDHN later (often by buying it back).
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## The Trove lifecycle in one diagram

{% @mermaid/diagram content="flowchart TD
A\[Deposit collateral] --> B\[Open Trove]
B --> C\[Mint USDHN: debt]
C --> D\[Manage position: add/withdraw collateral, repay/mint USDHN]
D --> E\[Repay all debt]
E --> F\[Withdraw collateral & close]

D -->|If CR drops too low| L\[Liquidation]
L --> SP\[Stability Pool: offsets debt, receives collateral]

style A fill:#B0BBF4,color:#333,stroke:#4C5FD5,stroke-width:2px
style B fill:#4C5FD5,color:#fff,stroke:#3A49C5,stroke-width:2px
style C fill:#EEFBA0,color:#333,stroke:#D1F24A,stroke-width:2px
style D fill:#D1F24A,color:#333,stroke:#B8DA2C,stroke-width:2px
style L fill:#3A49C5,color:#fff,stroke:#4C5FD5,stroke-width:2px
style SP fill:#EEFBA0,color:#333,stroke:#D1F24A,stroke-width:2px" %}

## Key concept: Collateral Ratio (CR)

$$
CR = \frac{\text{Collateral Value}}{\text{Debt Value}}
$$

* If collateral price falls → **CR decreases**.
* If you mint more USDHN (more debt) → **CR decreases**.
* If you add collateral or repay debt → **CR increases**.

{% hint style="warning" %}
**\[TBD] Thresholds by collateral** — Each collateral branch has its own safety parameters (e.g., minimum CR). These values are defined on-chain and shown in the official UI. This GitBook does not hardcode them to avoid staleness.
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## How to open a Trove

{% stepper %}
{% step %}

#### Step 1: Choose a collateral branch

Pick the collateral you want to deposit (e.g., KAIA or a Kaia LST-related asset).

Your choice affects:

* price volatility profile
* oracle and liquidity conditions
* liquidation and redemption dynamics
  {% endstep %}

{% step %}

#### Step 2: Decide your safety buffer

Set collateral and USDHN mint amount so your CR has a buffer above the minimum.

Practical tip: treat the UI “liquidation price” as a *risk indicator*, not a target.
{% endstep %}

{% step %}

#### Step 3: Confirm the transaction

After confirmation:

* your Trove is created
* USDHN is minted to your wallet
* you can adjust the Trove at any time (subject to system conditions)
  {% endstep %}
  {% endstepper %}

## How liquidation works (user perspective)

A liquidation is a forced position cleanup that happens when your Trove becomes unsafe.

Typical triggers:

* collateral price drops
* you mint more USDHN without adding collateral
* you withdraw collateral too aggressively

{% tabs %}
{% tab title="What you lose" %}

* Part (or all) of your collateral can be sold/redistributed as the system repays your debt.
* You may also pay liquidation-related penalties and execution costs.

{% hint style="danger" %}
Liquidation can happen faster than you expect in volatile markets.
{% endhint %}
{% endtab %}

{% tab title="How to reduce risk" %}

* Maintain a healthy CR buffer.
* Avoid high leverage unless you can actively manage.
* Monitor collateral price and your Trove health.
* Understand redemption mechanics if you use advanced rate/strategy features.

Next: [Redemptions & Risk](https://hann-finance.gitbook.io/hann-finance/protocol/redemptions-and-risk)
{% endtab %}
{% endtabs %}

## FAQ

## Deep dives (optional)

* Trove mental model (isolated positions, branches): [Trove Concepts Deep Dive](https://hann-finance.gitbook.io/hann-finance/resources/deep-dives/trove-concepts)
* CR and liquidation price (with examples): [CDP Safety Deep Dive](https://hann-finance.gitbook.io/hann-finance/resources/deep-dives/cdp-safety)
* Liquidation + Earn mechanics (what changes during events): [Liquidations & Earn Deep Dive](https://hann-finance.gitbook.io/hann-finance/resources/deep-dives/liquidations-and-earn)

## Next reads

* Stable asset basics and Earn: [USDHN & Earn](https://hann-finance.gitbook.io/hann-finance/protocol/usdhn-and-earn)
* Peg and redemptions: [Redemptions & Risk](https://hann-finance.gitbook.io/hann-finance/protocol/redemptions-and-risk)
* Automation: [Zapper Guide](https://hann-finance.gitbook.io/hann-finance/protocol/zapper)