How borrowing works
Keel doesn't run its own lending protocol. Every loan is a real MUSD trove on Mezo, opened through Mezo's BorrowerOperations contract. This page explains the MUSD rules Keel builds into every quote.
#The pieces of a loan
| Term | What it means |
|---|---|
| Collateral | The BTC you lock in the loan (native BTC on Mezo). |
| Debt | What you owe: the MUSD you received, plus a one-time fee, plus a refundable 200 MUSD gas reserve, plus interest over time. |
| Borrowing fee | One-time, 0.1% of the amount borrowed, added to your debt. |
| Interest | A fixed annual rate set by Mezo when you open the loan (1% APR on testnet at the time of writing). |
| Gas compensation | 200 MUSD added to the debt and held by Mezo to pay whoever closes or liquidates the loan. You get it back when you repay in full. |
| Minimum net debt | Mezo doesn't allow loans smaller than 1,800 MUSD of net debt (debt minus the 200 MUSD gas compensation). |
| Collateral ratio (ICR) | Collateral value divided by debt. 160% means $1.60 of BTC behind every $1 of debt. |
| Liquidation | If the ratio falls below 110%, anyone can liquidate the loan. Your debt is cleared but you lose the collateral. |
| Redemption | Anyone can swap MUSD for BTC at face value. Redemptions hit the lowest-ratio loans first: part of your debt is repaid with part of your collateral. It isn't a loss at face value, but you end up holding less BTC. |
| Recovery Mode | If the whole system's ratio (TCR) falls below 150%, Mezo enters Recovery Mode. New borrowing must keep the loan at or above 150%. |
#A worked example
Suppose BTC is $80,000, you borrow 1,800 MUSD and choose a 160% ratio.
| Line | Amount |
|---|---|
| You receive | 1,800 MUSD |
| Borrowing fee (0.1%) | + 1.8 MUSD |
| Gas compensation (refundable) | + 200 MUSD |
| Total debt | 2,001.8 MUSD |
| Collateral needed at 160% | 2,001.8 × 1.6 ÷ 80,000 = 0.04004 BTC |
| Liquidation price (ratio = 110%) | 2,001.8 × 1.1 ÷ 0.04004 = ≈ $55,000 |
| Interest at 1% APR | about 20 MUSD a year |
So BTC can fall about 31% before this loan becomes liquidatable. With a guardian set to "below 170%, restore to 180%", the keeper acts long before that.
#What Keel checks before you sign
Keel refuses to prepare a transaction that Mezo would reject:
- Under the minimum: the loan would be below 1,800 MUSD of net debt.
- Under 110%: the loan would be immediately liquidatable.
- Under 150% in Recovery Mode.
- A repayment that leaves less than the minimum. You can either repay down to 1,800 MUSD of net debt or close the loan completely; the app tells you which.
#Managing the loan
| Action | What it does |
|---|---|
| Add collateral | Raises your ratio. |
| Repay | Lowers your debt and raises your ratio. |
| Close | Repays everything; your collateral and the guardian's reserve come back to you. |
| Borrow more | Takes more MUSD while you stay above the minimum ratio. |
Each of these is a transaction you sign. Keel prepares it and computes the sorted-list hints Mezo needs.