Trove

A Trove is a Collateralized Debt Position (CDP), a fundamental DeFi primitive. It is a smart contract vault that holds user-deposited ETH as collateral and allows the user to mint LUSD stablecoins against it, up to a maximum of 110% collateralization ratio. Each Trove is individually owned and managed by its creator.

Each Trove maintains a Collateral Ratio (CR), calculated as (ETH Value / LUSD Debt) * 100. This ratio is dynamic and fluctuates with the market price of ETH. To remain open and avoid liquidation, a Trove must stay above the Minimum Collateral Ratio (MCR) of 110%. Users can adjust their ratio by adding/withdrawing collateral or minting/repaying debt.

If a Trove's collateral ratio falls below 110%, it becomes eligible for liquidation. The protocol's Stability Pool, filled with LUSD from stakers, is the first line of defense. Liquidated collateral is distributed to Stability Pool providers, and the Trove's debt is cleared. This mechanism ensures system solvency without relying on auctions.

Trove owners have direct control to:

• Deposit more ETH to increase collateral and improve their ratio.
• Withdraw excess ETH if the ratio remains above 110%.
• Mint additional LUSD against existing collateral.
• Repay LUSD debt to reduce their loan and improve their health. A 0.5% borrowing fee is applied to newly minted LUSD.

Interacting with a Trove is designed for gas efficiency. Key operations like opening, adjusting, and closing a Trove are optimized for low-cost execution on Ethereum. The system is permissionless; anyone can open a Trove with no credit checks, relying solely on the cryptographic security of over-collateralization.

If the total system collateral ratio falls below 150%, the protocol enters Recovery Mode. In this state, the minimum collateral ratio for individual Troves increases, and Troves with the lowest ratios can be liquidated regardless of the 110% threshold. This acts as a final backstop to protect the entire system's solvency during extreme market downturns.

Trove's core mechanism enables users to borrow the TAI stablecoin against approved collateral without paying recurring interest. Instead, the protocol charges a one-time borrowing fee and a redemption fee when TAI is exchanged for collateral, aligning incentives around system stability rather than ongoing debt accrual.

Users can deposit assets like wFTM, wETH, and wBTC as collateral. The system's stability is maintained by a Stability Pool, which acts as the first line of defense. It holds TAI from liquidity providers who earn rewards from liquidations, automatically repaying debt from undercollateralized Troves.

A Trove enters liquidation if its Collateral Ratio falls below the minimum (e.g., 110%). The Stability Pool is used first to repay the debt. If the pool is insufficient, the system enters Recovery Mode, where Troves with the lowest collateral ratios can be liquidated regardless of their ratio to restore overall solvency.

The protocol incentivizes participation through its native TROVE token. Users can stake TROVE to earn staking rewards and a share of system fees. Additionally, Liquidity Providers (LPs) for TAI on decentralized exchanges and Stability Pool depositors earn TROVE emissions, aligning long-term participation with protocol health.

TROVE token holders govern the protocol through veTROVE (vote-escrowed TROVE). Governance controls critical parameters like fee rates, collateral types, and reward distributions. The TAI stablecoin maintains its peg through arbitrage opportunities created by the redemption mechanism, where users can redeem TAI for underlying collateral at face value plus a fee.

Built on the Fantom Opera network, Trove is a fork of Liquity Protocol, optimized for lower fees and faster transactions. Its smart contract system is non-custodial and permissionless, with key components including the Borrower Operations contract for managing Troves, the Stability Pool contract, and the Hint system for efficient transaction processing during liquidations.

The digital assets (e.g., ETH, wBTC) a user deposits to secure a loan and open a Trove. The value of the collateral, relative to the debt, determines the Collateral Ratio and the Trove's safety from liquidation.

A first-line capital reservoir used to absorb debt from liquidated Troves. Users deposit the protocol's stablecoin (e.g., LUSD) to earn rewards. When a Trove is liquidated, its debt is offset, and its collateral is distributed to Stability Pool depositors.

The automated process triggered when a Trove's Collateral Ratio falls below the minimum threshold (e.g., 110%). The Trove is closed, its debt is repaid from the Stability Pool or via a collateral auction, and a liquidation penalty is applied.

The loan amount, denominated in the protocol's stablecoin (e.g., LUSD), that a user draws against their collateral. This debt accrues a Stability Fee (interest) over time, which is added to the total debt balance of the Trove.

A key risk metric calculated as (Collateral Value / Debt Value) * 100%. A higher CR indicates a safer, less leveraged position. Protocols set a Minimum Collateral Ratio (MCR); falling below it triggers liquidation.

A mechanism allowing any holder of the protocol's stablecoin to redeem it for the underlying collateral at face value, starting with the riskiest Troves (lowest CR). This creates a hard price floor and enforces system solvency.