Vaults

A vault in the Ducat Protocol is like a secure digital safe where users lock up their Bitcoin (BTC) as collateral to mint UNIT, a Bitcoin-native stablecoin. Think of it as the backbone of the system—where BTC gets “parked” to create new value while ensuring everything stays over-collateralized and secure.

Here’s how it works: when a user wants to mint UNIT, they deposit BTC into a vault. This isn’t just a simple deposit—it’s a smart, rules-based, agreement. The protocol checks if the user has enough BTC, verifies the current BTC/USD price through oracles, and ensures all conditions are met (like staying above the 160% minimum collateralization 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—adding more BTC, borrowing more UNIT, repaying debt, or withdrawing BTC (as long as the vault remains safe).

2. Liquidation Mechanism: If BTC’s value drops and the collateralization ratio falls below the 135% liquidation threshold, the vault can be liquidated to protect the system. This ensures UNIT is always backed by real BTC, even in volatile markets.

Importantly, the user always retains partial control, and the guardians (via the MPC Network) simply ensure the protocol’s rules are enforced—they never control your BTC.

Vaults are core to UNIT’s stability: securing collateral, managing risk, and keeping everything trustless yet efficient.

How vaults work

Users requests to open a vaults by depositing BTC as collateral in exchange for UNIT tokens. The MPC Network checks if they have enough BTC, verifies the BTC/USD price, and calculates network fees.

The process happens in two linked transactions:

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

• Second transaction: The BTC moves into a vault, which creates a record of the vault's creation

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

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

• When the vault’s guardians and oracle liquidate the vault if the collateral value drops to the Liquidation Threshold

All changes to the vault are recorded to track the user's borrowing activity and collateral levels. The system references the minimum collateralization Canonical Reference Point to determine the amount of UNIT that an individual vault can mint:

Maximum UNIT = (BTC Collateral * BTC/USD Price) / (Minimum Collateralization Ratio)

Where Minimum Collateralization Ratio = 160%. The MCR is a key risk parameter defined in the Governance CRS, and is subject to governance and therefore change.

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