# FAQs

### **Why would I use Meridian for borrowing?**

Meridian offers interest-free loans and is more capital efficient than other borrowing systems (i.e. less collateral is needed for the same loan). Instead of selling ETH to have liquid funds, you can use the protocol to lock up your ETH, borrow against the collateral to withdraw USDM, and then repay your loan at a future date.   You can hold the USDM for as long as you like as there is no interest to pay on the borrowing.

For example, borrowing in this way allows users to leverage their ETH positions up to 11 times.  This can be achieved by lending ETH to get USDM and then selling the USDM on the open market to purchase more ETH — rinse and repeat.  However this should not be taken as a recommended investment approach as there is significant risk involved and should only be used by experienced investors.

### **How can Meridian offer interest-free borrowing?**

Meridian charges a one-time borrowing and redemption fee that algorithmically adjust to ensure that the USD peg is maintained.  For example: If more redemptions are happening (which means USDM is likely trading at less than 1 USD), then the borrowing fee would continue to increase, discouraging further borrowing.

### **What is a Trove?**

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

Troves maintain two balances: one is an asset (ETH) acting as collateral and the other is a debt denominated in USDM. You can change the amount of each by adding collateral or repaying debt. As you make these balance changes, your Trove’s collateral ratio changes accordingly.

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

### What is the collateral ratio?

This is the ratio between the Dollar value of the collateral in your Trove and its debt in USDM. The collateral ratio of your Trove will fluctuate over time as the price of Ether changes. You can influence the ratio by adjusting your Trove’s collateral and/or debt — i.e. adding more ETH collateral or paying off some of your debt. 

For example: Let’s say the current price of ETH is `$3,000` and you decide to deposit `10 ETH`. If you borrow `10,000 USDM`, then the collateral ratio for your Trove would be `300%`.

$$\frac{10 ETH \ \* \ $3.000}{10.000 \ LUSD} \* 100% = 300%$$

If you instead took out `25,000 USDM` that would put your ratio at `120%`

### **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 debt to collateral 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 Trove has a debt `10,000 USDM`, you would need at least `$11,000` worth of Ether posted as collateral to avoid being liquidated.

To avoid liquidation during [Recovery Mode](https://docs.liquity.org/faq/recovery-mode), it is recommended to keep ratio comfortably above `150%` (e.g. `200%` or better `250%`).

### What is MST? 

Meridian Staking Token (MST) is the secondary token issued by the Meridian protocol. It captures the fee revenue that is generated by the system and incentivizes early adopters.

MST is a non inflationary ERC20 token with a maximum total supply of 10,000,000

MST rewards will only accrue to Stability Providers  - users who deposit USDM to the Stability Pool, and Liquidity Providers - users who provide liquidity to the MLP trading pool.

*All rewards are based on preprogramed functionality of the protocol and do not represent any sort of claim towards protocol developers or any third party.*

### How do I benefit as a Stability Provider from liquidations?

As liquidations happen just below a collateral ratio of `110%`, you will most likely experience a net gain whenever a [Trove](#what-is-a-trove) is liquidated. 

Let’s say there is a total of `1,000,000 USDM` in the Stability Pool and your deposit is `100,000 USDM.` 

Now, a Trove with debt of `200,000 USDM` and collateral of `400 ETH` is liquidated at an Ether price of `$545`, and thus at a collateral ratio of `109% (= 100% * (400 * 545) / 200,000)`. Given that your pool share is `10%`, your deposit will go down by `10%` of the liquidated debt (`20,000 USDM`), i.e. from `100,000` to `80,000 USDM`. In return, you will gain `10%` of the liquidated collateral, i.e. `40 ETH`, which is currently worth `$21,800`. Your net gain from the liquidation is `$1,800`. 

Note under normal circumstances depositors can immediately withdraw the collateral received from liquidations and sell it to reduce their exposure to ETH, if the USD value of ETH is expected to decrease 

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