Collateral Management

Overview

The ZEUR protocol implements a sophisticated collateral management system that ensures protocol safety while maximizing capital efficiency. The system supports multiple collateral types, dynamic risk parameters, and automated staking to generate yield on deposited assets.

Supported Collateral Assets

ETH (Ethereum)

Symbol: ETH
Type: Native cryptocurrency
Decimals: 18
Staking: Automatic across multiple LST protocols
Yield: Ethereum staking rewards (~3-5% APR)

LINK (Chainlink)

Symbol: LINK
Type: ERC20 token
Decimals: 18
Staking: Via StakeLink protocol
Yield: LINK staking rewards (~4-7% APR)

Collateral Configuration

Each collateral asset has a comprehensive configuration that determines its risk parameters and operational limits:

struct CollateralConfiguration {
    uint256 supplyCap;              // Maximum total supply allowed
    uint256 borrowCap;              // Maximum borrowing against this collateral
    address colToken;               // Associated colToken contract
    address tokenVault;             // Associated vault contract
    uint16 ltv;                     // Loan-to-value ratio (basis points)
    uint16 liquidationThreshold;    // Liquidation threshold (basis points)
    uint16 liquidationBonus;        // Liquidation bonus (basis points)
    uint16 liquidationProtocolFee;  // Protocol fee on liquidations (basis points)
    uint16 reserveFactor;           // Reserve factor for protocol (basis points)
    bool isFrozen;                  // Frozen state flag
    bool isPaused;                  // Paused state flag
}

Example Configurations

ETH Configuration

CollateralConfiguration({
    supplyCap: 1000000 ether,           // 1M ETH max supply
    borrowCap: 800000 ether,            // 800K ETH max borrow backing
    colToken: address(colETH),          // colETH token address
    tokenVault: address(vaultETH),      // ETH vault address
    ltv: 8000,                         // 80% LTV
    liquidationThreshold: 8500,         // 85% liquidation threshold
    liquidationBonus: 10500,            // 105% (5% bonus to liquidators)
    liquidationProtocolFee: 1000,       // 10% of liquidation bonus to protocol
    reserveFactor: 1000,                // 10% reserve factor
    isFrozen: false,                    // Active
    isPaused: false                     // Active
})

LINK Configuration

CollateralConfiguration({
    supplyCap: 100000 ether,            // 100K LINK max supply
    borrowCap: 70000 ether,             // 70K LINK max borrow backing
    colToken: address(colLINK),         // colLINK token address
    tokenVault: address(vaultLINK),     // LINK vault address
    ltv: 7000,                         // 70% LTV (more conservative)
    liquidationThreshold: 7500,         // 75% liquidation threshold
    liquidationBonus: 11000,            // 110% (10% bonus to liquidators)
    liquidationProtocolFee: 1000,       // 10% of liquidation bonus to protocol
    reserveFactor: 1000,                // 10% reserve factor
    isFrozen: false,                    // Active
    isPaused: false                     // Active
})

Risk Parameters

1. Loan-to-Value (LTV) Ratio

The LTV ratio determines the maximum borrowing power against collateral:

Max Borrow Value = Collateral Value × LTV

Example:

User deposits $10,000 worth of ETH (80% LTV)
Maximum borrowing capacity: $10,000 × 0.80 = $8,000

LTV Considerations:

ETH: 80% (high confidence in ETH stability)
LINK: 70% (slightly more volatile than ETH)
Buffer: LTV < Liquidation Threshold for safety margin

2. Liquidation Threshold

The liquidation threshold determines when a position becomes liquidatable:

Health Factor = (Collateral Value × Liquidation Threshold) / Debt Value

When Health Factor < 1.0, liquidation is triggered.

Example:

User has $10,000 ETH collateral (85% threshold)
User has $8,500 debt
Health Factor = ($10,000 × 0.85) / $8,500 = 1.0
Position is at liquidation threshold

3. Liquidation Bonus

The liquidation bonus incentivizes liquidators to maintain protocol health:

Collateral Seized = (Debt Repaid × Liquidation Bonus) / Collateral Price

Example:

Liquidator repays $1,000 debt
ETH liquidation bonus: 5%
Collateral received: $1,000 × 1.05 = $1,050 worth of ETH

4. Supply and Borrow Caps

Caps limit protocol exposure to any single asset:

Supply Cap: Maximum total amount that can be deposited

Prevents over-concentration in any asset
Limits protocol exposure to asset-specific risks

Borrow Cap: Maximum borrowing backed by this collateral type

Controls leverage on volatile assets
Manages liquidity requirements

Health Factor Calculation

The health factor is the primary metric for position safety:

Single Collateral

Health Factor = (Collateral Value × Liquidation Threshold) / Debt Value

Multiple Collateral Assets

Weighted Liquidation Threshold = Σ(Collateral_Value_i × Threshold_i) / Total_Collateral_Value
Health Factor = (Total_Collateral_Value × Weighted_Threshold) / Total_Debt_Value

Health Factor Interpretation

> 1.5: Very safe position
1.1 - 1.5: Safe position
1.0 - 1.1: Risky position, close to liquidation
< 1.0: Liquidatable position

Collateral Operations

1. Supply Collateral

function supply(address asset, uint256 amount, address from) external payable;

Process:

Validation: Check asset is allowed and not paused
Transfer: Move asset to appropriate vault
Staking: Vault automatically stakes asset
Tokenization: Mint colToken 1:1 with deposit
Tracking: Update user's collateral balance

Example:

// Supply 5 ETH as collateral
pool.supply{value: 5 ether}(ETH_ADDRESS, 5 ether, user);

2. Withdraw Collateral

function withdraw(address asset, uint256 amount, address to) external;

Process:

Health Check: Ensure health factor remains > 1.0 after withdrawal
Burn Tokens: Burn user's colTokens
Unstaking: Unstake assets from LST protocols
Transfer: Send unstaked assets to user

Safety Checks:

UserAccountData memory userData = getUserAccountData(msg.sender);
require(userData.healthFactor >= HEALTH_FACTOR_BASE, "Insufficient health factor");

3. Liquidation

When a position becomes unhealthy (health factor < 1), it can be liquidated:

function liquidate(
    address collateralAsset,
    address debtAsset,
    uint256 debtAmount,
    address from
) external;

Liquidation Process:

Health Check: Verify position is liquidatable
Amount Limits: Max 50% of debt can be liquidated per transaction
Bonus Calculation: Calculate collateral to seize with bonus
Execution: Repay debt, seize collateral
Distribution: Send collateral to liquidator

Asset State Management

Asset States

Assets can be in different operational states:

1. Active State

Supply: ✅ Allowed
Withdraw: ✅ Allowed
Borrow Against: ✅ Allowed
Liquidate: ✅ Allowed

2. Frozen State

Supply: ❌ Blocked
Withdraw: ✅ Allowed
Borrow Against: ❌ Blocked
Liquidate: ✅ Allowed

3. Paused State

Supply: ❌ Blocked
Withdraw: ❌ Blocked
Borrow Against: ❌ Blocked
Liquidate: ❌ Blocked

State Transitions

// Protocol admin can change asset states
function freezeCollateral(address asset, bool freeze) external restricted;
function pauseCollateral(address asset, bool pause) external restricted;

Automatic Staking Integration

ETH Staking

ETH collateral automatically stakes across multiple protocols:

User ETH → VaultETH → Distribution → Multiple LSTs
                   ├── Lido (stETH)
                   ├── RocketPool (rETH)
                   ├── EtherFi (eETH)
                   └── Morpho (Vault)

Benefits:

Diversified staking risk
Optimized yields
Automatic rebalancing
No manual management required

LINK Staking

LINK collateral stakes via StakeLink:

User LINK → VaultLINK → StakeLink → stLINK Rewards

Benefits:

Native LINK staking yields
Simplified staking process
Automatic reward compounding

Risk Management Features

1. Diversification

Multiple LST protocols reduce concentration risk
Asset-specific caps limit exposure
Cross-collateral support spreads risk

2. Dynamic Parameters

Risk parameters can be updated by governance
Market conditions influence parameter changes
Gradual parameter changes prevent market shock

3. Circuit Breakers

Pause functionality for emergency situations
Freeze functionality for risk mitigation
Oracle-based price protection

4. Liquidation Incentives

Competitive liquidation bonuses
Protocol fees support sustainability
Partial liquidation limits prevent over-liquidation

Collateral Valuation

Price Sources

All collateral valuations use Chainlink oracles:

interface IChainlinkOracleManager {
    function getAssetPrice(address asset) external view returns (uint256);
}

Valuation Formula

function calculateCollateralValue(address user, address asset) internal view returns (uint256) {
    uint256 balance = IERC20(colToken).balanceOf(user);
    uint256 price = oracleManager.getAssetPrice(asset);
    uint256 decimals = IERC20Metadata(asset).decimals();

    return (balance * price) / 10**decimals;
}

Multi-Asset Portfolios

For users with multiple collateral types:

function getTotalCollateralValue(address user) internal view returns (uint256) {
    uint256 totalValue = 0;
    address[] memory assets = getCollateralAssetList();

    for (uint256 i = 0; i < assets.length; i++) {
        totalValue += calculateCollateralValue(user, assets[i]);
    }

    return totalValue;
}

Gas Optimization

Efficient Operations

Batch liquidations for multiple assets
Optimized storage layouts
Minimal external calls

Staking Efficiency

Automated distribution across LSTs
Optimal gas usage for staking operations
Batch unstaking when possible

The collateral management system ensures that ZEUR protocol maintains safety while maximizing capital efficiency through automated staking and careful risk parameter management.

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Last updated 16 days ago