CDP Safety Deep Dive

Deep dive on CDP safety — how CR works, how liquidation price is derived, and what repaying USDHN really means

This page is for borrowers. It expands the key math and the most common misunderstandings: CR, liquidation price, and repayment.

Not investment advice — Borrowing against volatile collateral is risky. This page is educational.

At a glance

• A Trove is “collateral posted + USDHN debt owed”.

• Your liquidation risk is mostly about Collateral Ratio (CR).

• “Liquidation price” is CR math solved for the collateral price at the minimum CR.

• Your debt is in USDHN units. Selling the USDHN you minted does not remove the obligation to repay.

The variables (plain)

Symbol	Meaning	Notes
C	collateral amount (e.g., 10 KAIA)	unit depends on the collateral
P	collateral price (USD per unit)	typically an oracle price
V = C × P	collateral value (USD)	changes when P changes
D	debt (USDHN)	can increase with fees/interest
CR = V / D	collateral ratio	higher is safer

CR ↔ liquidation price — five common cases (worked)

Two formulas are enough for most borrower questions:

$$CR = \frac{C \times P}{D}$$

$$P_{liq} = \frac{MCR \times D}{C}$$

Where:

• MCR is the minimum collateral ratio for the collateral branch (shown in the official UI).

• P_liq is the collateral price at which your Trove hits MCR (the UI “liquidation price”).

Assume (illustrative numbers, not protocol parameters):

• MCR = 150% = 1.5

• C = 10

• P = $2

• D = 10

Baseline:

• CR = (10 × 2) / 10 = 200%

• P_liq = (1.5 × 10) / 10 = $1.50

Now the five cases:

Case	What changes	New CR	New P_liq	What to notice
1	Collateral price drops: P: $2 → $1.60	CR: 200% → 160%	unchanged ($1.50)	Market/oracle moves change CR, not P_liq
2	Borrow more: D: 10 → 15	CR = (10×2)/15 ≈ 133.3%	P_liq = (1.5×15)/10 = $2.25	More debt raises your liquidation price
3	Repay debt: D: 10 → 8	CR = (10×2)/8 = 250%	P_liq = (1.5×8)/10 = $1.20	Repaying lowers your liquidation price
4	Add collateral: C: 10 → 12.5	CR = (12.5×2)/10 = 250%	P_liq = (1.5×10)/12.5 = $1.20	Adding collateral lowers your liquidation price
5	USDHN market price moves	(protocol CR math usually unchanged)	unchanged	Your cost to close can change even if P_liq does not

Oracle vs market — Protocol safety checks typically use an oracle price for P. Markets can move faster than the oracle. Under volatility, your real liquidation risk can change before the UI refreshes.

How USDHN market price affects your real repayment cost

Your debt is denominated in USDHN units, but your “cost to close” depends on the market price when you buy back USDHN.

Example (ignoring fees/interest):

• you owe 1,000 USDHN

• if USDHN trades at $1.02, buying back costs about $1,020

• if USDHN trades at $0.98, buying back costs about $980

Peg deviations can help or hurt borrowers depending on when they repay.

Repayment reality: debt is an obligation, not a balance

If you mint 1,000 USDHN:

• you now owe 1,000 USDHN (plus any fees/interest that accrue)

• your wallet might contain 1,000 USDHN, or you might swap/sell it — the debt is unchanged

Closing a Trove requires you to obtain USDHN later to repay.

What can make debt grow over time?

Depending on the collateral branch and configuration, debt may increase due to:

• borrowing fees

• interest (rate-based borrowing)

• liquidation-related penalties if you get liquidated

The official UI should show your current debt and any rate/fee settings.

Borrower checklist (practical, non-numeric)

• Use the UI liquidation price as a risk indicator, not a target.

• Keep a buffer for fast moves (collateral price drops and UI lag).

• Remember you will need USDHN later to repay.

• Understand redemptions if you use advanced rate/strategy features.

Next reads

• Basic flow: Borrowing & Liquidation

• Peg mechanics: Redemptions & Risk

• Full risk framing: Risk Disclosure