Vaults

A vault in the Ducat Protocol is like a secure digital safe where users lock their Bitcoin (BTC) as collateral to mint UNIT, a Bitcoin-native stablecoin. It serves as the backbone of the system, where BTC is held to create new value while keeping the system overcollateralised and secure.

Here is how it works: when a user wants to mint UNIT, they deposit BTC into a vault. This is not just a simple deposit, it is a smart, rules-based agreement. The protocol checks whether the user has enough BTC, verifies the current BTC/USD price through oracles, and ensures all conditions are met, such as maintaining the minimum 160 percent collateralisation ratio. For example, if you lock $10,000 in BTC, you can mint up to 6,250 UNIT.

The vault has two critical functions:

1. User control: The user can update the vault by adding more BTC, borrowing more UNIT, repaying debt, or withdrawing BTC, as long as the vault remains safe.

2. Liquidation mechanism: If the value of BTC drops and the collateralisation ratio falls below the 135 percent liquidation threshold, the vault can be liquidated to protect the system. This ensures that UNIT is always backed by real BTC, even in volatile markets.

Importantly, the user always retains partial control. While the guardians (via the MPC network) ensure that the protocol’s rules are enforced, they never control your BTC.

Vaults are central to UNIT’s stability. They secure collateral, manage risk, and maintain a system that is both trustless and efficient.

How Vaults Work

Users request to open vaults by depositing BTC as collateral in exchange for UNIT tokens. The MPC network checks whether they have sufficient BTC, verifies the BTC/USD price, and calculates network fees.

The process occurs in two linked transactions:

First transaction: The user receives their UNIT tokens while their BTC is held as collateral.

Second transaction: The BTC is moved into a vault, creating a record of the vault’s creation.

The vault holding the BTC can be accessed in two ways:

• When the user updates their vault via any of the authorised guardians.

• When the vault is liquidated by the guardians due to the collateral value falling to the liquidation threshold.

All changes to the vault are recorded to track the user’s borrowing activity and collateral level.

The system references the minimum collateralisation Canonical Reference Satoshi to determine how much UNIT an individual vault can mint:

Maximum UNIT = (BTC collateral × BTC/USD price) ÷ Minimum Collateralisation Ratio

Where the Minimum Collateralisation Ratio (MCR) is 160 percent. The MCR is a key risk parameter defined in the Governance CRS and is subject to change through governance.

In other words, a vault with $10,000 of BTC could borrow a maximum of 6,250 UNIT.