Concepts

Fees

Debt accrues linearly as interest. Interest is paid whenever a CDP is closed due to repayment, liquidation, or redemption (note that adjusting a CDP is the same as closing that CDP and opening a new one, so accrued interest is paid for that action, and the new CDP starts with 0 interest). Interest is repaid either wholly in the borrowed synthetic, or partially in the Butane governance token (BTN) at a discount. The system ensures that BTN cannot be used to pay off an amount of interest that would mean a CDP owner could have leftover synthetics after fully repaying their position (and thus have created synthetics not backed by anything), and so the amount of interest payable in BTN is determined by the spread of a synthetic's savings rate and interest rate. As an example, if a position is opened for 100 MIDAS with an interest rate of 10% and a savings rate of 9%, after one year the position owner could repay their loan by burning 109 MIDAS and a 1 MIDAS equivalent in BTN (minus some discount), or by burning 110 MIDAS.

In the event of a liquidation, a share of the excess value taken as profit by the liquidator is shared with the Butane treasury. The value sent to the treasury is in the same token proportions as what was claimed by the liquidator.

Redemptions

Redemptions are a critical last resort mechanism used during exceptional market events, minimising price depeg where other stabilisation measures (i.e., interest, liquidations, staking incentives, e.t.c.) are insufficient. Redemptions are activated during such circumstances. Redemptions are not a user-facing feature, and will be executed on FIFO basis through an automated sequencer when enabled. Redemptions involve the burning of a portion of a CDP's debt and redeeming that burnt value against a proportionate value of collateral in a CDP (see Redemption Share in Synthetic Parameters). Remaining CDP debt is passed along in a continuing CDP position, and if fully redeemed, remaining collateral is sent to a collections script for the CDP owner.

Bad Debt

Bad debt occurs when a position is no longer overcollateralized, i.e. its debt is greater than its collateral value (and so its LTV is greater than 1). In these cases, liquidations are no longer incentivised, and so to prevent the existence of unbacked synthetics in the system, the bad position's debt and collateral may be absorbed into the Butane treasury, where other users can repay portions of the debt and receive equivalent collateral value, effectively redeeming against the treasury.