Managing vaults

Minimum reserve ratio (MRR)

The MRR is a safety buffer that helps the Tab protocol handle changes in Bitcoin's value. Vault owners must always keep their reserve ratio above this minimum to ensure stability.

Risk penalty

If the value of the Bitcoin reserves in a vault drops below the MRR, a Risk Penalty is applied. This penalty is calculated based on how much additional reserve is needed to meet the MRR, multiplied by a penalty rate. The penalty is charged at regular intervals, both of which can be adjusted by the community.

Vault owners are encouraged to keep their reserve ratio well above the MRR to avoid penalties. If a vault’s reserve ratio falls below the MRR, the owner can fix this by adding more reserves or burning some Tabs.

The goal of the Risk Penalty is to encourage cautious behaviour and maintain the protocol's stability without placing an excessive financial burden on vault owners through immediate liquidation. This balanced approach helps make the system more efficient.

Before you can perform vault operations like minting or burning Tabs, withdrawing reserves, or creating a new vault, any outstanding Risk Penalty must be paid. If there's a penalty when new Tabs are minted, it’s automatically deducted from the new Tabs.