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Overcollateralization

The mechanism responsible for making QNT deflationary.

Overcollateralization is the foundation of Quintes’ stability and solvency model. It ensures that every QNT in circulation is backed by significantly more collateral value than the QNT it represents.

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Why Overcollateralization Matters

Because QNT is a synthetic asset that derives its value from the Quintes Index, it must remain fully backed to guarantee that every holder can redeem their QNT at any time.

By requiring a collateral ratio of at least 200% (2:1), the system ensures that even under stress conditions, there is enough collateral to cover all QNT liabilities.

This design:

  • Protects the protocol from sudden price drops in collateral assets (like ETH or BTC).

  • Provides confidence to QNT holders and liquidators that redemptions will always be honored.

  • Supports long-term sustainability by reducing systemic insolvency risk.

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How It Works

  1. Collateral Deposit: Users lock high-quality assets, such as USDC, wBTC, or ETH into their personal vaults.

  2. Minting QNT: Based on the 2:1 overcollateralization ratio, every $200 of collateral allows minting $100 of QNT.

  3. Dynamic Protection: If QNT appreciates due to the Quintes Index (e.g., from $1.00 to $1.50), your collateral remains sufficient to cover the new value.

    • Example: $200 collateral covers 100 QNT × $1.50 = $150 in QNT value — still safe.

  4. Automatic Risk Controls: If the collateral value falls and your Health Factor (HF) drops below 1, a partial liquidation restores equilibrium by reducing QNT debt and freeing the system from risk.

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Collateral Efficiency

While overcollateralization limits leverage, it ensures the protocol always remains solvent. This trade-off makes QNT more predictable, stable, and resilient than undercollateralized systems.

Future governance (via QTS holders) may adjust collateral factors per asset:

  • Stablecoins (USDC): higher efficiency, lower volatility.

  • Crypto assets (wBTC, ETH): higher risk, lower collateral factor.

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Summary

Concept
Description

Minimum Collateral Ratio

200% (2:1)

Purpose

Ensure solvency, system stability, and redemption guarantees

Collateral Types

USDC, wBTC, ETH

When Ratio Falls

Partial liquidation restores safety

Governance Role

QTS holders adjust collateral factors

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