CDP

Collateralized Debt Position

zAssets can be minted by creating a collateralized debt position (CDP) with a DAI or whitelisted token as collateral.

Collateral

Currently, only DAI is available as collateral. In the future, ZDXT and zAssets may be added as collateral through governance. The collateral ratio that a CDP must maintain is expressed as the minimum collateral ratio for the zAsset multiplied by the multiplier parameter of the collateral asset. If it falls below this level, it may be liquidated by the Liquidator.

Collateral Ratio

Collateral Ratio (C Ratio) is the ratio of the value of CDP's pledged collateral to the current value of the minted tokens; CDP must always maintain the minimum collateral ratio set for each collateral asset. The collateral ratio is calculated by comparing the value of the zAsset expressed in oracle prices to the value of the collateral. If the prices of the collateral and the minted zAssets are $P_c$,$P_z$ and the amounts are $Q_c$,$Q_z$ respectively, the collateral ratio $r_t$ is calculated as follows.

$$r_t = \frac{P_cQ_c}{P_zQ_z}$$

Opening a new position

You can create a CDP by selecting a collateral asset and the zAsset to be minted, and specifying the collateral assets amount and the collateral ratio. The amount of zAsset to be minted is represented by the following equation using the initial C ratio $r_0$.

$$Q_{z} = \frac{P_{c}Q_{c}}{r_{0}P_{z}}$$

Deposit/Withdraw Collateral

Collateral can be added to or withdrawn from an existing CDP. When depositing collateral $Q_c$, the potential mintable zAsset increases by $Q_z'$ (negative when withdrawing). However, the minimum collateral rate $r_{min}$ must be maintained.

$$r_{min} \le \frac{P_{c}(Q_{c}+Q_{c}')}{P_{z}(Q_z + Q_{z}')}$$

Mint/Burn

In addition to collateral deposits and withdrawals, it is possible to adjust the collateral ratio by additional minting or partial redemption of CDP's zAsset. Additional minting can only be made in an amount that is not less than the minimum collateral ratio for the current collateral amount.

$$Q_c \ge \frac{r_\text{min} P_m (Q_z+Q_z')}{P_c}$$

When burning zAssets, the protocol fee is collected upon the zAsset's oracle price and the protocol fee rate. The protocol fee rate is set to 1.5%.

Closing The Position

When users want to withdraw all collateral from the CDP, they must redeem all zAsset and close the CDP. In the case of a short position, sLP tokens are automatically burned when the zAsset is redeemed.

Protocol Fee

The CDP of ZDX adopts a variable interest rate model. The variable interest rate fluctuates based on the difference between the on-chain DEX price $Pd$ and the oracle price $Po$ referenced off-chain (referred to as the "premium": $Pd-Po$) . If the premium is large, the interest rate is set lower, while a smaller premium results in a higher interest rate. This design encourages a decrease in the DEX price by incentivizing an increase in users aiming for short positions and CDP issuance when the premium is high. Conversely, when the premium is small, the higher interest rate serves as an incentive for users to close their short positions. Additionally, anticipating this movement, there will be users who attempt long positions, which accelerates the buying momentum on the DEX. This mechanism of adjusting interest rates based on the deviation between the fair price and market price is called a "stability fee", and it's a model that's also implemented in DAI, which has been successful as a decentralized stable coin.