Ambassador Community Guide: Vault 101

As a Vault Holder you deposit Collaterals to mint kUSD .
You are responsible to keep the vault at a safe level
i.e. keep Collateral ratio above the liquidation ratio.
You pay a stability fee for the kUSD minted until you repay all outstanding kUSD.
You will be charged a liquidation fee if your vault ever gets liquidated

Your risk is based on your Collateral ratio .
This is how much kUSD you mint based the amount of Collateral you have deposited.
If the price of your Collateral falls you effectively have less Collateral to cover your loan which decreases your Collateral ratio; in turn this may place your vault in danger of being liquidated.
You must maintain an appropriate Collateral ratio in order to keep your vault safe from liquidation. Some power users have reported maintaining at least 320% Collateral ratio or double the liquidation ratio of 160%. A 320% Collateral ratio has a higher probability of keeping you safe from liquidation in the event of a substantial % correction in the market price of your asset.

You would benefit from minting kUSD by being able to tap into the liquidity
of your Collateral without having to trade, sell or swap it for the stablecoin.You could then use the minted kUSD to generate further yield or trade.
In addition to that, let’s say your token goes up in value while your loan is still open, in this event it would take less of your Collateral to maintain the loan , freeing up a portion of said Collateral for further use and also allowing you to pay off your loan with profits.
You could also use the extra value of your Collateral to mint more kUSD in order to add to an LP and do some liquidity mining. Minting kUSD with your Collateral opens up options beyond just hodling

There are some fees associated with opening a vault and minting kUSD.
There is a Stability fee of 2.95% and a Liquidation fee of 12% . The Stability fee is for minting kUSD. It is displayed as an annualized interest rate for simplicity’s sake but is actually calculated per block and added to your debt . The Liquidation fee is a disincentive meant to influence you to maintain a safe Collateral ratio so that you do not leave your vault in danger. You would have to pay the loan back + stability fee + liquidation fee.

If your vault goes under 180% Collateral ratio, the collateral is locked as a security measure to make sure the stablecoin remains stable and pegged to $1.
At 160% Collateral value your Vault get’s liquidated. Your Collateral will be used to pay back the kUSD you owe and you will be charged a liquidation fee.

TIP: The fastest way to return to a safe collateral level is by paying back some of your kUSD debt.

Save minting, community!