Collateral Ratio
The Collateral Ratio (CR) represents the ratio between the value of the collateral in your Trove and its debt in USDS.
As the price of LSD changes, the CR of your Trove will fluctuate over time. You can influence the CR by adjusting the collateral and/or debt of your Trove, i.e. you can add more collateral or pay off some of your debt to increase the CR.
For example: Suppose the current price of ETH LSD is $3,000 and you deposit 1 ETH LSD token into your Trove. If you then borrow 1,000 USDS, the CR for your Trove would be 300%.
However, if you borrow 2,500 USDS instead, your CR would be 120%. This is because your debt would be greater than the value of your collateral, which can increase your liquidation risk. It's important to maintain a healthy CR to avoid the risk of liquidation.
Minimum Collateral Ratio (MCR)
It is the lowest ratio of debt to collateral that will not trigger a liquidation under normal operation, which is set at 110%. For example, if you borrow 10,000 USDS, you would need to have a collateral of at least $11,000 ETH LSD to avoid liquidation.
For risk-averse borrowers or users who do not plan on actively managing their Trove, we recommend maintaining a collateral ratio that is comfortably above both the MCR of 110% and the 150% Recovery Mode collateral ratio to avoid liquidation.
Sable Finance is able to offer a collateral ratio as low as 110% by implementing instantaneous and efficient liquidation mechanisms. Unlike other protocols that rely on lengthy auction mechanisms to sell off collateral in liquidations, Sable requires less collateral to provide the same level of security.
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