Collateral and Reserves

Mendi implements the collateral and reserve mechanic implemented by Compound Finance.

Each asset supported by Mendi Finance is integrated through a cToken contract, which is an EIP-20 compliant representation of balances supplied to the protocol. By minting cTokens, users (1) earn interest through the cToken’s exchange rate, which increases in value relative to the underlying asset, and (2) gain the ability to use cTokens as collateral.

cTokens are the primary means of interacting with the Mendi Finance Protocol; when a user mints, redeems, borrows, repays a borrow, liquidates a borrow, or transfers cTokens, she will do so using the cToken contract.

There are currently two types of cTokens: CErc20 and CEther. Though both types expose the EIP-20 interface, CErc20 wraps an underlying ERC-20 asset, while CEther simply wraps Ether itself. As such, the core functions which involve transferring an asset into the protocol have slightly different interfaces depending on the type, each of which is shown below.

Reserve Factor

Reserves are an accounting entry in each soToken contract that represents a portion of historical interest which can be withdrawn or transferred through the protocol's governance. A small portion of borrower interest accrues into the protocol, determined by the reserve factor.

The reserve factor is the percentage of interest paid to the Mendi Finance. If the reserve factor is 10, then that would imply a 10% rate of interest paid on the borrowed asset allocated to Mendi.

Collateral Factor

soTokens have a collateral factor that can range from between 0-90%, and represents the proportionate increase in liquidity (borrow limit) that an account receives by minting the soToken.

Large or liquid assets tend to have high collateral factors; whereas smaller or more illiquid assets will tend to have lower collateral factors. If an asset has a 0% collateral factor, it cannot be used as collateral (or seized in a forced liquidation event). However, the asset can still be borrowed.

In summary, the Collateral Factor is the maximum you can borrow against a particular asset.

Example: if the collateral factor for USDC is 75%, the maximum amount of USDC you would be able to borrow in other assets (assuming a deposit of 1000 USDC) would be $750.

IMPORTANT WARNING: We are estimating the following collateral ratios and reserve factors for assets that are coming soon. Before listing these they can be subject to revision.

TOKEN	COLLATERAL FACTOR	RESERVE FACTOR
USDC	85%	10%
USDT	85%	10%
wETH	80%	15%
DAI	80%	13%
wBTC	65%	20%
wstETH	60%	20%
ezETH	50%	20%

Collateral factors, and/or reserve factors, may be adjusted from time to time, depending on factors such as the liquidity for a particular asset. There will be prior notifications of any change before implemented and ample time for any user to adjust their positions.