| description | Users can deposit collateral into Membrane’s vault mechanism and mint Collateralized Debt Tokens (CDT) |
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The mechanism is analogous to a “Line of Credit”, where vault owners can deposit their collateral to receive a line of credit against it. This functionality enables a large amount of flexibility in otherwise rigid token positions.
The Vault mechanism is composed of 5 primary parts: Deposit, Withdraw, Mint, Repay, and Liquidate.
In the Deposit stage, anyone can deposit their collateral into the protocol, represented as a “bundle”. Bundling assets uses their average interest rate and “Loan to Value” (LTV) in proportion, giving vaults the ability to mitigate volatile asset risk.
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With bundled positions, the minter avoids liquidation of both assets
Vault owners can Withdraw collateral limited by the borrowable LTV
In the Mint stage, the owner can mint CDT up to the borrowable LTV
Anyone can Repay any outstanding CDT loans
If the LTV ratio exceeds maximum LTV (meaning there isn’t enough collateral to safely guarantee the backed value of the CDT assets), the vault will be available for Liquidation.