Borrowing and Liquidations
Last updated
Last updated
Flux introduces a user-controlled interest rate system, allowing borrowers to set and adjust the rate they are willing to pay for their loans. Instead of relying on governance or algorithmic rate setting, market forces determine borrowing costs based on individual risk tolerance.
Each collateral type has its own independent borrowing market, enabling competitive rate discovery and a more flexible lending environment.
Building on the foundations established by the STAB Protocol, Flux maintains a highly secure and decentralized borrowing framework while significantly improving capital efficiency and transitioning to a 1:1 USD-pegged stablecoin.
You can borrow fUSD by providing the protocol with collateral of higher value than the borrowed fUSD. This is called an overcollateralized loan. To ensure collateral is also worth more than debt, liquidations can happen when your loan-to-value (LTV) ratio drops below the Max LTV for your chosen collateral type. When the user loans, they are provided with a Flux Generator NFT.
Currently, the only supported collaterals are XRD and LSULP. Only decentralized collaterals will ever be considered while the protocol functions correctly.
Yes, borrowers must take out a minimum loan of 50 fUSD.
fUSD loans have no fixed repayment schedule. You can maintain an open loan for as long as you want, provided you keep your loan-to-value (LTV) ratio within healthy limits.
Yes, users can withdraw their collateral deposits at any time, or even close their loan by repaying their debt.
Loans are liquidated if their LTV (loan-to-value) exceeds the maximum limit (66.67% for XRD and 60% for other supported collateral types).
Your loan being liquidated means that your debt is fully paid off, in return for some of your collateral. A borrower whose loan is liquidated incurs a 5% penalty but can still reclaim any remaining collateral after liquidation.
Flux relies on Flux Reservoirs as the primary liquidation mechanism. These pools absorb liquidated debt and collateral, rewarding depositors with liquidation gains in exchange for burning debt. Each borrow market has its own dedicated Flux Reservoir.
If the Flux Reservoir is empty, liquidations can only occur if someone deposits fUSD into it again.
Your ideal LTV depends on your risk appetite and how actively you plan to manage your position. The UI will provide you with an indication of liquidation risk for your chosen LTV.
You will be liquidated if your LTV rises too high, so be careful!
Liquidations come with small transaction cost, which the initiator must cover. To compensate for this, and provide a little extra reward, the protocol provides gas reimbursement based on the following formula:
FLAT_FEE of collateral + PERCENTAGE_FEE * 100% of debt value in collateral
where:
FLAT_FEE is currently 5.
PERCENTAGE_FEE is currently 0.
The maximum LTV depends on the collateral type:
XRD: 66.67%
Other supported assets: 60%
Flux charges an extra upfront fee of 7 days of interest. Additionally, the borrower pays interest on an ongoing basis, resulting in their debt increasing over time.
The upfront fee makes short-term loans unattractive. For flash loans, a special module exists (learn more). For longer short loans, we recommend using other borrowing platforms.
Borrowers set their own interest rates. For example, if you borrow 10,000 fUSD at a 5% interest rate, you would owe approximately 500 fUSD in interest after one year (512.71 fUSD to be precise, as interest compounds every minute). This interest is added to your outstanding debt.
Flux gives borrowers full control over their borrowing costs by allowing them to set their own interest rates. This makes loans more predictable and adaptable to market conditions while stabilizing fUSD's peg.
User-set rates establish a market-driven balance between fUSD borrowers and holders, ensuring capital efficiency. These rates also act as a primary revenue source for fUSD liquidity providers and Flux Reservoir depositors, creating sustainable, real yield.
Borrowers should set their rates based on their risk tolerance and potential exposure to redemptions.
Yes! You can adjust your interest rate at any time. Since you set your own rate, you have full control over your borrowing costs.
However, a fee equal to 7 days of your chosen interest applies when:
Opening a loan.
Adjusting your rate less than 7 days after the previous adjustment.
This prevents borrowers from evading redemptions by quickly increasing and then lowering their rate around a redemption transaction, which would unfairly push redemptions onto higher-interest borrowers.
Your interest rate directly affects your redemption risk, so it should align with your goals and how actively you want to manage your loan.
You can either:
Manage your own rate, balancing lower costs with higher redemption risk.
Delegate rate management to a third party. This is not possible yet, but is on the roadmap, and fairly simple to implement due to Radix' architecture.
Since redemptions prioritize the lowest interest rates, it’s often best to keep a buffer of other borrowers with lower rates ahead of you. A higher rate increases costs but offers more stability in volatile markets.
To help decide, you can see how much fUSD is redeemable before your position when choosing an interest rate.
Additionally, redemptions typically happen when fUSD trades below $1 minus the current redemption fee. Keeping track of past redemption activity can give you insights into your overall risk exposure.
In general:
Active borrowers or those taking short-term loans may benefit from lower rates.
Passive, long-term borrowers may prefer higher rates for peace of mind.
Your risk is shaped by two key factors:
Loan-to-Value (LTV) – Your debt-to-collateral ratio, which affects your liquidation risk.
Interest Rate (IR) – The rate you set yourself, which influences redemption risk.
With full control over these settings, you can adjust your risk level to match your strategy. Additionally, you can open multiple loans, allowing you to manage different risk profiles across your portfolio.
To prevent redemption evasion strategies, a premature adjustment fee applies when an interest rate change is made less than 7 days after the last adjustment (or loan opening).
This fee is equal to 7 days of the loan's chosen interest.
It is denominated in fUSD and added to your loan's debt.
The same fee applies when opening a new loan or increasing debt (only on the added amount).
This fee ensures fair participation and prevents users from minimizing interest payments unfairly.
You can open multiple loans with the same collateral or across different collateral types. Each loan is represented as a separate NFT, giving you flexibility in managing your borrowing strategies.
Yes! Loans are NFTs, meaning they can be easily transferred between wallets.
More advanced strategies, like selling loans on secondary markets (e.g., Trove) are thus possible.
⚠️ Caution: if you're looking at raw loan NFT data, make sure you understand its debt is denominated in pool units. Ideally, use a front-end that supports trading Flux Loan Receipts, and instantly converts this pool unit denominated debt into "real debt".
Looping lets you borrow fUSD against your collateral (XRD, LSULP) and use it to buy more collateral, increasing your exposure.
Flux currently doesn't offer one-click automation to streamline this process, so you'll have to do this manually. This feature is definitely on our wishlist though, whether that be through a third-party dashboard, or through our own front-end.
Flux currently maintains two separate borrow markets for different collateral types, each with:
Independent Flux Reservoirs for efficient liquidations.
User-set interest rates to adjust risk exposure.
Collateral-specific LTV factors to maintain stability.
Risk is further mitigated through redemption logic favoring collateral with less Flux Reservoir support to maintain balance.
⚠️ Important: fUSD remains dependent on XRD and LSULP. While mechanisms exist to maintain overcollateralization, there is no strict guarantee if a collateral asset collapses suddenly.
Risk exposure depends on the user type:
Borrowers: Your risk is limited to the collateral you hold. A failure in another collateral type does not affect your loan.
fUSD Holders: As a multi-collateral stablecoin, fUSDdepends on effective liquidations across all borrow markets to stay overcollateralized. Holders are exposed to risks across all collateral assets.
Earners (Flux Reservoir depositors): You are only exposed to the collateral type you choose. However, as an fUSD holder, you are still subject to risks like potential depegging.