Repaying and Liquidating Mutuum’s Stablecoin
When users repay their stablecoin debt or face liquidation, the repaid tokens are burned rather than returned to any supplier. Before repayment or liquidation, the smart contracts check that the user or liquidator can adequately cover the outstanding amount. Since the stablecoin does not rely on external suppliers, any interest paid during repayment is transferred entirely to Mutuum’s treasury. The principal portion is removed from circulation, and the Issuer’s outstanding stablecoin level decreases accordingly.
Example Scenario
The user holds 100 debt tokens representing 100 units of borrowed stablecoin.
Over time, the debt accrues interest, increasing slightly (e.g., 100.0000012).
The user decides to repay and purchases enough stablecoins from the market—say an additional 900 stablecoins - to bring their total on-hand to 1000.
The user grants approval to Mutuum’s protocol so it can withdraw the stablecoins for repayment.
Upon repayment, the 100.0000012 stablecoin tokens are moved to the protocol, burning the principal portion (100) and forwarding the interest portion (0.0000012) to Mutuum’s treasury. Correspondingly, the 100 debt tokens are burned as the user’s debt is cleared.
The liquidation process for the stablecoin functions similarly to other borrowed assets in Mutuum. If a user’s stability factor falls below a certain level due to collateral depreciation, liquidators can step in to repay a portion of the user’s debt and purchase the collateral at a discount. This mechanic incentivizes rapid resolution of undercollateralized positions and helps maintain the stablecoin’s overcollateralized status. Borrowers looking to avoid liquidation can either add more collateral or repay part of their borrowed stablecoins, restoring their stability factor to a safer level.
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