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Borrowers are regular users, organizations, smart contracts, bots, or other on-chain entities.
In order to effectively become a borrower, an entity must provide and lock-up something as a collateral. In the current version of the protocol, the collateral is represented by a small number of Uniswap V3 LP positions on Polygon.
Once a borrower has locked their collateral, they can freely mint over-collateralized BOB tokens up to the evaluated limit. As the borrowed debt is represented by BOB tokens, it’s effectively denominated in USD. Evaluation of the available borrow limit is done according to parameters determined by the BOB risk subDAO and depends on the collateral type and assets.
The ability to mint over-collateralized BOB is provided to borrowers in exchange for paying a small protocol stability fee, which accrues on the total debt amount. Borrowers are free to use obtained BOB tokens in any way, such as trading activities, farming, leverage opportunities, etc.
As the underlying prices of the supplied collateral change, available borrow limits change as well. If, at some point in time, the evaluated limit becomes less than the outstanding debt, a borrower's CDP position becomes subject to liquidation.
Upon liquidation, the entire amount of the borrower's collateral is sold to the first seen liquidator able to repay the debt in full. In the future version of the protocol, partial more-efficient liquidations will be also possible.
Liquidation typically implies a permanent loss for the borrower, which is limited to a fraction (see Liquidation premium (3%)) of the locked collateral value. Liquidation of debt originated from pools with high collateralisation ratios may result in extra claimable BOB tokens for the position owner.
Liquidators keep the system healthy and are responsible for liquidation of under-collateralized positions. Typically liquidators are automated bots.
During the first stage, liquidators will be manually whitelisted. However, liquidator positions will be open to public and community once the protocol matures.
Liquidators monitor existing debt positions and their health. Once a position becomes subject to liquidation, the liquidator repays the entire borrower's debt and receives their collateral in exchange. Collateral is then auctioned or sold to the liquidators (possibly in a single atomic transaction) for BOB tokens. In exchange for their service and gas costs, liquidators receive a small liquidation premium. See Liquidationsfor more detailed liquidation process.
Protocol governance is responsible for maintaining healthy system settings. This includes proper analysis of listed collaterals, including risk and liquidity assessment. Governance controls the list of whitelisted collaterals, protocol parameters, and the global system configuration.