❔FAQ

This page goes over common questions and problems that users might have.

Common Questions

What differentiates Palm Finance from other borrowing protocols?

Palm Finance decentralized borrowing protocol that allows users to borrow up to 11x against LP tokens, staked assets, and base asset — and up to 22x on yield-bearing stablecoins at 0% interest.

Palm Finance offers cross-collateralized borrowing. Multiple assets can be put together in one debt position which greatly reduces the risk of liquidations due to asset volatility and flash crashes.Users retain all farming and staking rewards when these assets are deposited onto Palm Finance’s platform, opening up numerous leveraged farming strategies.

It is most often compared to Abracadabra + Liquity, combining the best of both protocols while innovating with key features like cross-margining, improved risk mechanisms, and lower minimum collateral ratios.

Our native stablecoin, PUST, is also hard pegged with multiple mechanisms to keep the price of PUST as stable as possible. Palm Finance has gone through an extensive auditing process for any potential vulnerabilities and exploits.

In short, Palm Finance has 0% interest fees on borrowing, borrowing against your entire portfolio, and high leveraging like no other protocol.

How can I be sure that PUST will remain pegged?

The ability to redeem PUST for collateral at face value (i.e. 1 PUST for $1 of collateral) and the minimum collateral ratio of 110% create a price floor and price ceiling (respectively) through arbitrage opportunities. We call these "hard peg mechanisms" since they are based on direct processes. PUST also benefits from less direct mechanisms for USD parity — called "soft peg mechanisms".

One of these mechanisms is parity as a Schelling point. Since Palm Finance treats PUST as being equal to USD, parity between the two is an implied equilibrium state of the protocol. Another of these mechanisms is the borrowing fee on new debts. As redemptions increase (implying PUST is below $1), so too does the baseRate — making borrowing less attractive which keeps new PUST from hitting the market and driving the price below $1.

How do you come up with safety ratios for collaterals?

Safety ratio is related to how “risky” a collateral is. Yield bearing stables have a safety ratio up to 1.05, while all non stablecoin collateral will have a safety ratio between 0 and 1. (i.e Highly liquid and trusted collateral will have a safety ratio of 1.0 while more risky collateral will have a safety ratio of 0.8 or 0.5.). It is a factor of liquidity on Ethereum, market cap, and oracle type.

As for how the team comes up with these numbers, the team models and specifies the safety ratio themselves with economic modeling firm, 3σ labs led by @OxVerif. Palm Finance also has the firm on retainer for any future collateral safety ratios. Down the line, assigning safety ratios will be controlled by governance but as for now it is controlled by the team to allow for a smoother launch.

How come I can't open a Asset portfolio?

One of the most common problems people face when trying to open up a Asset portfolio is that a minimum debt of 2000 PUST + fees is required. Therefore, you must deposit more than 2000 dollars worth of collateral in order to open a Asset portfolio.

Keep in mind that your Asset portfolio's collateral ratio must be above 110% to open a Asset portfolio too.

What are some preventative measures to avoid liquidations?

To avoid liquidations, try to keep your Asset portfolio's collateral ratio above 150%. Anyone can liquidate a Asset portfolio as soon as it drops below the minimum collateral ratio of 110%. Therefore, it is critical to keep your Asset portfolio's collateral ratio above 110%, and above 150% to avoid recovery mode.

When the system's Total Collateral Ratio drops below 150%, the system will enter recovery mode, meaning that Asset portfolios with collateral ratios below the TCR are eligible for liquidations.

Just to be safe, we recommend to keep your Asset portfolio's collateral ratio above 150% and at healthy ratios if you want to avoid liquidations.

What do you mean by collateral?

Collateral is any asset which a borrower must provide to take out a loan, acting as a security for the debt.

How can you offer a collateral ratio as low as 110%?

Palm Finance allows for instantaneous, more efficient liquidations. Anyone can call a function to liquidate a Asset portfolio whose collateral ratio falls below 110% MCR. When the liquidate function is called, PUST is transferred from the stability pool in order to repay the debt and the Asset portfolio’s collateral is transferred to the stability pool.

Palm will be running a bot to liquidate risky Asset portfolios, but anyone can do the same to receive liquidation rewards. Liquidators receive a reward of 200 PUST + 0.5% of the collateral from the Asset portfolio.

Other lending protocols require a higher collateral ratio because they rely on auction mechanisms or outside liquidators to purchase collateral instead of a utilizing a safer native liquidation system.

How can the protocol offer interest-free borrowing?

Palm Finance mints an over-collateralized stablecoin that is backed by borrowers' collateral. The protocol doesn't have to pay for lenders to deposit their stablecoins to be lent out, which is what allows the protocol to offer interest-free borrowing. We make money on one-time fees as well as a cut of the farming rewards/yield on collateral deposited into the platform.

Do I have to pay fees as a borrower?

Palm Finance charges one-time borrowing fees. There are two types of fees for borrowers. First, there is a deposit fee when you add collateral to Palm Finance. Second, is a one-time borrow fee when new PUST debt is issued.

Deposit fees depend on the type of collateral you are adding. If you are adding a "risky" collateral type which is already starting to back a significant amount of PUST, the deposit fee will be higher. Borrow fees are based on redemption volume. If more redemptions are happening (which means PUST is likely trading at less than 1 USD), the borrowing fee would continue to increase, discouraging borrowing.

Under normal conditions, the one-time borrow fee is confined to a range between 0.5% and 5%. If redemptions are occurring, this suggests PUST Price < $1, so fees are higher to de-incentivize borrowing and de-incentivize more PUST from entering the market. However, the borrow fee is0% during Recovery Mode.

We also take a cut of yield generated on collateral deposited in Palm Finance.

What is a Asset portfolio?

A Asset portfolio is where you take out and maintain your loan. Each Asset portfolio is linked to an Avalanche address and each address can have just one Asset portfolio. If you are familiar with Vaults or CDPs from other platforms, Asset portfolios are similar in concept.

Asset portfolios can hold multiple collateral types as well as a debt denominated in PUST. You can change the amount of each by adding collateral or repaying debt. As you add/subtract collateral and debt, your Asset portfolio’s collateral ratio changes accordingly.

You can close your Asset portfolio at any time by fully paying off your debt.

How can I borrow with Yeti Finance?

To borrow, you must deposit a certain amount of collateral to open a Asset portfolio. Then you can draw PUST up to a collateral ratio of 110%. A minimum debt of 2,000 PUST is required.

When do I need to pay my loan back?

Loans issued by the protocol do not have a repayment schedule. You can leave your Asset portfolio open and repay your debt any time, as long as you maintain a collateral ratio of at least 110%.

What is the minimum collateral ratio (MCR) and the "recommended" collateral ratio?

The minimum collateral ratio (or MCR for short) is the lowest ratio of collateral to debt that will not trigger a liquidation under normal operations (aka Normal Mode). This is a protocol parameter that is set to 110%. So if your Asset portfolio has a debt 10,000 PUST, you would need at least $11,000 worth of collateral to avoid being liquidated.

What happens if my Asset portfolio is liquidated?

You can lose some or all of your collateral as your debt is paid off through liquidation, i.e. you will no longer be able to retrieve your collateral by repaying your debt. In normal mode, a Asset portfolio can be liquidated if its collateral ratio is less than 110%. In recovery mode, a Asset portfolio can be liquidated if its collateral ratio is less than 150%.

On liquidation, the system will take collateral from your tAsset portfolio up to max of 110% of the value of your debt. Any additional collateral in a liquidated Asset portfolio will be available for the original Asset portfolio owner to claim. i.e. if you have $140,000 in collateral in your Asset portfolio and 100,000 in PUST debt and your Asset portfolio gets liquidated, the system will take $110,000 of your collateral and the other $30,000 will still be yours, waiting for you to claim it.

What is the Liquidation Reserve?

When you open a Asset portfolio and draw a loan, 200 PUST is set aside as a way to compensate gas costs for the transaction sender in the event your TAsset portfolio being liquidated. The Liquidation Reserve is fully refundable if your Asset portfolio is not liquidated, and is given back to you when you close your Asset portfolio by repaying your debt. The Liquidation Reserve counts as debt and is taken into account for the calculation of a Asset portfolio's collateral ratio, slightly increasing the actual collateral requirements.

What happens if my Asset portfolio is redeemed against?

When PUST is redeemed, the collateral provided to the redeemer is allocated from the Asset portfolio(s) with the lowest collateral ratio (even if it is above 110%). If at the time of redemption you have the Asset portfoliowith the lowest ratio, you will give up some of your collateral, but your debt will be reduced accordingly.

The USD value by which your collateral is reduced corresponds to the nominal PUST amount by which your Asset portfolio’s debt is decreased. You can think of redemptions as if somebody else is repaying your debt and retrieving an equivalent amount of your collateral. As a positive side effect, redemptions improve the collateral ratio of the affected Asset portfolios, making them less risky.

Redemptions can fully pay off a Asset portfolio’s debt. In this case, your Asset portfolio is closed, and you can claim your collateral surplus and the Liquidation Reserve at any time.

Let’s say you own a Asset portfolio with 2 interest bearing tokens(ibTKNs) collateralized and a debt of 3,200 PUST. The current price of ibTKN is $2,000. This puts your collateral ratio (CR) at 125% (= 100% * (2 * 2,000) / 3,200). Let’s imagine this is the lowest CR in the Palm Finance system and look at two examples of a partial redemption and a full redemption:

Example of a partial redemption

Somebody redeems 1,200 PUST for 0.6 ibTKN and thus repays 1,200 PUST of your debt, reducing it from 3,200 PUST to 2,000 PUST. In return, 0.6 ibTKN, worth $1,200, is transferred from your Asset portfolio to the redeemer. Your collateral goes down from 2 to 1.4 ibTKN, while your collateral ratio goes up from 125% to 140% (= 100% * (1.4 * 2,000) / 2,000).

Example of a full redemption

Somebody redeems 6,000 PUST for 3 ibTKN. Given that the redeemed amount is larger than your debt minus 200 PUST (set aside as a Liquidation Reserve), your debt of 3,200 PUST is entirely cleared and your collateral gets reduced by $3,000 of JLP, leaving you with a collateral of0.5 ibTKN (= 2 - 3,000 / 2,000).

Why did the collateral and debt of my Asset portfolio increase without my intervention?

If Asset portfolios are liquidated and the Stability Pool is empty (or gets emptied due to the liquidation), every borrower will receive a portion of the liquidated collateral and debt as part of a redistribution process.

A Asset portfolio can only be redistributed collaterals that it currently holds. I.e. if your Asset portfolio has no WETH, you won't be redistributed WETH in the event that a Asset portfolio with WETH gets liquidated while the stability pool is empty. Redistribution of debt occurs in a proportional fashion based on the RAV of collaterals in the Asset portfolio that is liquidated. Redistributions should not occur under normal system operations, but can occur during black swan events/if the stability pool is not sufficiently filled with PUST.