Collateral Ratios
As the primary use case of the loans platform, let's see how borrowing works and how you can benefit with it.
Users can lock up their ETH & borrow ARTH against the collateral. Redeeming a loan position can be done quite easily. You can get your assets back once you repay your position in ARTH valuecoin.
For borrowing, a user has to open a loan position & deposit a certain amount of collateral for it. A user can then draw ARTH depending upon the collateral ratio they have set. Users can set a collateral ratio of anything up to 110% and above.
There are four kinds of collateral ratios to consider.

Individual Collateralization Ratio (ICR)

The ICR or Individual collateralization ratio is the ratio that determines how much ARTH a borrower will receive for the ETH they are willing to collateralize. The CR is set by the user when a loan is opened and can be adjusted later on by adding/removing collateral or debt. The minimum CR required is 110%.
Example 1: If user A sets a CR of 110% and creates a position of 10,000$ in ARTH, they would have to at least collateralize 11,000$ worth of ETH. This position is highly prone to liquidation if the CR% falls below 110%.
Example 2: If user B sets a CR of 150% and creates a position of 10,000$ in ARTH, they would have to at least collateralize 15,000$ worth of ETH. This position is more secure than Example 1.
A higher CR% means a user's position is less prone to liquidation. But, it also means that they will receive less ARTH for the collateralized position. Whereas a lower CR% means the user's position is more prone to liquidation, and they will receive more ARTH for their collateralized position.

Minimum Collateralization Ratio (MCR)

The Minimum Collateralization Ratio (or MCR) is the lowest ratio of collateral that will not trigger a liquidation. This is set at 110% under normal conditions.
Whereas in recovery mode, this MCR is set to 150%. To avoid liquidation during Recovery Mode, it is recommended to keep the ratio above 150%.
As a borrower, you should make sure you open a loan with a high enough collateral ratio (we recommend 200%+) to avoid getting liquidated and suffering a loss of funds.

Total Collateral Ratio (TCR)

The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current protocol price, to the entire system debt.
In other words, it's the sum of the collateral of all loans expressed in the protocol price, divided by the debt of all loans expressed in ARTH.

Nominal Collateral Ratio (NCR)

A loan's nominal ICR is its entire collateral (in ETH) multiplied by 100e18 and divided by its entire debt.