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Managing Debt

Collateralization Ratio

Each liquidity position has a collateralization ratio (or C-Ratio). This represents the relationship between the value of the collateral associated with the liquidity position and the amount of the debt it’s backing. This is represented as a percentage. For example, a C-Ratio of 200% means that the value of the collateral is double the amount of debt it’s backing.

The value of the collateral is calculated based on the price of the collateral reported by an oracle. The value of the debt is the amount of snxUSD minted with this liquidity position, minus the amount of snxUSD burned with this position, plus/minus the debt/credit it is responsible for by participating in a pool.

If a liquidity position’s collateralization ratio falls below its minimum collateralization, the position can be liquidated. To reduce risk of liquidation, collateralization ratios can be increased by depositing additional collateral or burning snxUSD.

A position’s collateral, debt, and resulting C-Ratio can be retrieved with the getPositionCollateral, getPositionDebt, and getPositionCollateralizationRatio functions, respectively.

The getPositionCollateralizationRatio function returns the C-Ratio of the specified liquidity position. (If the position has more credit than debt, this function returns 0.) The minimum C-Ratio of a given collateral type can be retrieved with the getCollateralType function. All of these values are represented as an integer with 18 decimal places.

All of the functions which reference a position’s debt (such as getPositionDebt and getPositionCollateralizationRatio) may update cached values in the system, so they are not declared as view functions. To use them as such, they can be queried using callStatic. All values returned by the system will be accurate regardless of the recency of a cache update.

Mint and Burn snxUSD

Stakers can mint snxUSD, a fully decentralized stablecoin backed by the collateral they’ve deposited. This is effectively taking out an interest-free loan, where each minted snxUSD token increases the debt of the position by $1. snxUSD is a fully compliant ERC-20 token which can be exchanged freely and used with markets backed by the Synthetix protocol. snxUSD is minted by calling the mintUsd function.

Stakers may not mint snxUSD such that their position’s collateralization ratio drops below the Target C-Ratio. (The Target C-Ratio of a given collateral type can be retrieved with the getCollateralType function, represented as an integer with 18 decimal places.)

snxUSD can also be repaid to the protocol by burning it. This decreases the debt of a position by $1 per snxUSD burned, regardless of whether this debt was accrued from minting sUSD or from debt delegated by a pool. snxUSD is burned by calling the burnUsd function.