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Nebula Vaults & Collateral

What are Nebula Vaults?​

A Nebula Vault is where you deposit collateral with which you can borrow $STAR.

While collateral is deposited into a Nebula Vault, it is yield-farmed using low-risk strategies that activate the otherwise static asset.

Since Preon charges no interest, you can close your Nebula Vault at any time by paying off your debt.

Collateral Ratio and Loan to Value Ratio

The ratios between the value of the collateral, the collateral itself, and the amount borrowed are referred to as the collateral ratio (CR) and the Loan-To-Value (LTV) ratio, respectively. Users that want to keep a strong position within the protocol must understand the differences between the two concepts.

Collateral Ratio​

The percentage of the overall value of the collateral to the entire value of what was borrowed is referred to as the collateral ratio. It is a percentage that shows how much of the borrowed money is backed by the collateral.

𝐢𝑅=(𝐢𝑉/𝐡𝑉)β‹…100

A higher collateral ratio means that the borrower has more collateral compared to the borrowed amount, which reduces the risk for the protocol.

LTV (Loan-to-Value) Ratio​

In contrast, the LTV ratio is the ratio of the total value of the collateral to the total value of the borrowed amount. It also represents the proportion of the borrowed money that is covered by the collateral, and is given as a percentage.

𝐿𝑇𝑉=(𝐡𝑉/𝐢𝑉)β‹…100

A lower LTV ratio implies a safer position for the borrower, as it means that they have more collateral relative to the borrowed amount, reducing the risk of liquidation.

Why deposit collateral on Preon?

Capital efficiency​

Due to the nature of how Preon works, keeping every asset within Preon active is our top priority.

Even if collateralized, assets are yield-farmed in low-risk strategies.

This means users can increase their exposure to assets by leveraging their position.

0% interest​

Many borrowing protocols provide a variable borrowing APR that is based on supply and demand. Users may find this to be rather difficult since they must continually monitor their position to prevent liquidation. Variable APR can grow fairly rapidly and dramatically, as has recently been demonstrated, which can result in a poor user experience.

With Preon, you can take advantage of interest-free borrowing with a modest ceiling and a fixed one-time borrowing fee of 8% for positions lasting more than six months.