Classic Vaults

The core of the Parallel Protocol are Vaults. Users mint PAR/paUSD by depositing collateral such as Ether (ETH) into the Vault smart contract. The steps involved to mint new PAR/paUSD are as follows:

  • A Borrower deposits collateral, automatically creating a new Vault. Based on the Vault's collateral balance, a Borrower can borrow up to a certain amount of PAR/paUSD. The Vault must be collateralized with more than a Minimum Collateralization Ratio (MCR) for borrowing. For example, an MCR of 150% means borrowers need 150% collateral deposited before they can borrow.

  • A separate liquidation MCR (Liquidation Ratio (LR)) is used to calculate for liquidations. For example, an LR of 130% means Vaults with an MCR below 130% can be liquidated. Both ratios for initial borrowing and liquidations are configured per collateral type.

  • The PAR smart contract mints the borrowed amount of PAR tokens to the Borrower.

  • An Origination Fee is applied for newly created debt. (0.2% of minted amount)

  • PAR & paUSD are ERC20 tokens that one can transfer and use normally, pegged to the EUR & USD fiat currency.

  • A Borrowing Fee accrues over time on all active Vaults, which has to be fully repaid before the Borrower can withdraw their collateral.

  • A Health Factor is the ratio between a vault's current and minimum MCR (or LR.) If a Vault's liquidation health factor goes below a minimum value due to market changes, profit-seeking Liquidators can liquidate the undercollateralized Vault to receive its collateral at a discount.

  • Borrowers need to retain enough collateral in their Vaults to borrow additional funds and avoid being liquidated.

  • The PAR & paUSD token are fully redeemable stablecoins. Borrowers can redeem and burn PAR/paUSD to repay their debt, close their Vault, and withdraw their collateral.

  • Liquidators earn a liquidation bonus for liquidating underwater vaults.

  • A Liquidation Fee is charged to the Borrower during liquidation, which is added to the outstanding debt.

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