Key Terms From This Episode
Arbitrage:
The practice of taking advantage of price differences between markets. In Liquid Loans, users can arbitrage USDL when it trades below its $1 peg by buying it cheaply on the open market and redeeming it for $1 worth of ETH through the protocol.
Collateral Surplus:
The difference between the dollar value of a Vault's ETH collateral and the dollar value of its USDL debt. In a liquidation, this represents the net value that gets redistributed.
Liquidator:
Any user who initiates the liquidation of an undercollateralized Vault. Liquidators receive gas compensation for their service to the protocol.
Redemption:
The act of exchanging USDL for an equivalent value of ETH directly through the protocol. Anyone holding USDL can redeem it for $1 worth of ETH at any time. Redemptions always target the Vaults with the lowest collateral ratios first.
Redemption Fee:
A fee charged when redeeming USDL for ETH, ranging from 0.5% to 5% based on system demand. This fee is paid to LOAN token stakers.
Slippage:
The difference between the expected price of a trade and the actual execution price, common in decentralized exchanges during periods of high volatility or low liquidity.
The LL Librarian
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