How It Works
Overcollateralized Loans, 1:1 Redemptions, Stability Pool Liquidations
Goals of the Protocol
Solvency: Every ebUSD loan is overcollateralized, meaning the value of the collateral exceeds the loan amount, creating a buffer that protects the system against market volatility and insolvency.
Maintaining ebUSD's $1 Peg: Beyond ensuring full collateral backing, the protocol includes mechanisms to keep ebUSD trading at $1 across secondary markets (Redemptions and Protocol Incentivized Liquidity) as deviation from peg undermines the activities of Borrowers and Earners.
Efficient Liquidations: To avoid bad debt and maintain system solvency, liquidations of risky loans are handled quickly and fairly through the Stability Pools.
Permissionless Self-Regulation: Ebisu has no centralized custodian. Instead, it relies on decentralized liquidations and redemptions to ensure every ebUSD in circulation remains fully backed.
Key Components of Ebisu Money
Troves
A Trove is loan/position. Each Trove is linked to an Ethereum address, and each address can have multiple Troves. Each Trove allows you to permissionlessly use collateral tokens mint ebUSD, adjust collateral and debt levels, set your own interest rate, and repay ebUSD to recoup your collateral.
Redemptions
ebUSD holders can redeem their tokens directly with the protocol for $1 worth of collateral. Redemptions target positions with the lowest interest rates first and do not incur a liquidation penalty.
Why It Matters:
Creates arbitrage opportunities when ebUSD trades below peg.
Reduces circulating supply of ebUSD.
Raises the average interest rate of remaining positions (making them less attractive redemption targets).
LPs in ebUSD’s secondary pools are not exposed to the risk of being unable to withdraw their assets, as they can always redeem for the underlying collateral.
Redemption Flow:
A user sends ebUSD to the protocol.
The system reduces debt from the lowest-rate Troves to match the amount redeemed.
The user receives $1 worth of collateral per ebUSD, minus a redemption fee.
Example: If ebUSD trades at $0.993, an arbitrageur can buy 500,000 ebUSD on a DEX for $496,500 and redeem it for $500,000 worth of collateral — locking in a profit.
Impact on Redeemed Troves/Borrowers
The redeemed ebUSD is used to repay the debt of Troves in exchange for an equivalent amount of collateral ie. redeemed Troves do not incur losses, they do lose exposure to collateral.
Liquidations
A Trove is liquidated when its Collateralization Ratio (CR) falls below the Minimum Collateral Ratio (MCR) for its collateral asset — typically due to falling collateral prices.
CR = (Value of Debt)/(Value of Collateral) * 100%Why It Matters:
Ebisu’s Stability Pool design enables smoother, slippage-free liquidations, improving systemic capital efficiency compared to auction-based models. Because liquidations are absorbed directly by the SP, each dollar of SP liquidity can support a larger debt load without relying on volatile secondary markets for liquidation. While maximum LTVs are comparable to money markets, Ebisu’s efficient liquidation flow and predictable redemption mechanics enable safer leverage at lower cost — particularly in high-demand collateral branches.
Liquidation Process:
A Trove’s debt is canceled using ebUSD from the corresponding Stability Pool.
The borrower’s collateral is seized and distributed proportionally among Stability Pool depositors.
The borrower retains any previously withdrawn ebUSD.
Outcome for Earners (Stability Pool Depositors):
Earners receive collateral (e.g., WBTC or weETH) plus a 5% liquidation bonus.
They are exposed to price volatility of the received asset.
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