Mezo borrowing: Collateral Capacity and Loan Obligations

Collateral and Network Readiness

A borrow request needs BTC on Mezo Mainnet for collateral and transaction fees; BTC held on Bitcoin or tBTC held on Ethereum isn't yet available in that account. Depositing tBTC from Ethereum through an EVM wallet brings BTC onto Mezo. The borrowing action then commits collateral and creates a loan position. Its Borrow record shows the resulting obligation after completion.

Native BTC Bridge-in closed on October 13, 2026, ending deposits from Bitcoin wallets. An existing Bitcoin-wallet account can still manage loans, send assets on Mezo or bridge out directly to BTC. New deposits use an EVM wallet. A completed source-chain transaction can precede receipt on Mezo, so the destination BTC balance establishes whether funding has arrived.

MUSD Minting and mUSDC Market Credit

MUSD Debt Positions

MUSD aims to track the US dollar. Opening a collateralized debt position, also called a Trove, creates MUSD debt against committed BTC. Closing that obligation requires MUSD to cover the repayable principal, accrued interest and applicable fees. The repayment token remains MUSD even when the borrowed proceeds have been swapped.

mUSDC Lending

USDC appears as mUSDC on Mezo. This borrowing product uses the Morpho Blue BTC/mUSDC market, where supplier deposits fund BTC-backed loans. Its rate responds to lending demand. mUSDC has no MUSD-style redemption mechanism, so the two products have different ways collateral can leave a position.

What Determines Available Borrowing Capacity?

Borrowing capacity follows the BTC collateral value, the debt the request would create and the selected product's collateral rules; the wallet's BTC quantity alone can't establish an acceptable loan amount. An mUSDC request also needs enough available market liquidity; insufficient liquidity blocks borrowing even when collateral is adequate. The preview shows projected loan health as the collateral and requested debt change. A request close to liquidation leaves little room for subsequent price movements or interest.

Loan-to-value, or LTV, divides debt value by collateral value. The collateral ratio reverses that division. A lower LTV and a higher collateral ratio both describe greater collateral coverage. BTC price declines increase LTV even when the collateral quantity stays unchanged. Accruing interest also increases the debt side. BTC committed to a veBTC lock isn't available as MUSD collateral until the underlying BTC is unlocked.

New MUSD loans require at least 110% collateral coverage in Normal Mode. That opening minimum leaves little margin against liquidation. Recovery Mode raises the minimum for new loans, so the same collateral and debt proposal can face a different opening requirement as system conditions change.

MUSD Opening Debt and the Escrow Deposit

MUSD borrowing starts at a minimum of 1,800 MUSD of borrowed debt. An additional 200 MUSD gas deposit brings opening debt to at least 2,000 MUSD before other charges. The protocol holds that deposit in escrow instead of delivering it as spendable proceeds. The 200 MUSD gas deposit counts toward debt when calculating the loan's collateral ratio. The collateral requirement therefore applies to more than the amount arriving in the wallet. This escrow serves liquidation compensation and differs from the BTC transaction fee the wallet pays to execute a borrowing action.

Interest Terms and Action-Specific Charges

MUSD charges differ from mUSDC market interest; the MUSD fee schedule updated August 20, 2026 lists the following rates and fee bases for that product.

Existing Credit and Additional Borrowing

MUSD's listed range is 1-5% annual percentage rate, or APR. Existing credit keeps its opening rate unless the borrower refinances. The August 20, 2026 fee guide says added credit uses the current rate, while the published MUSD v1.1.0 contracts use the Trove's existing rate. Confirm the rate applied to the proposed increase before authorizing it. MUSD uses simple interest, so a fixed rate still produces a growing obligation over time. mUSDC uses variable APR instead, making its current rate another changing input in the account record.

Issuance and Refinancing

The standard MUSD issuance charge adds 0.1% of newly borrowed MUSD to debt, including loan increases. The published v1.1.0 contract waives it in Recovery Mode and for fee-exempt accounts. Refinancing adds a separate MUSD fee to debt: 0.02% of debt excluding the 200 MUSD gas reserve, unless a fee exemption applies. BTC network fees also apply to transactions such as minting and repayment; the MUSD escrow doesn't replace them.

The Borrow Record and the Wallet Balance

A completed loan leaves debt and committed collateral in its position record, while the borrowed tokens appear separately as assets the borrower can transfer or spend. A wallet signature authorizes a transaction; it doesn't alone establish that the borrowing completed. The Borrow dashboard supplies the loan status. For mUSDC, it also displays the outstanding amount, collateral, current LTV, liquidation price, APR and recent activity.

MUSD accounting distinguishes principal from accrued interest. Its entire debt can also include pending debt allocations from redistribution, just as entire collateral can include pending collateral allocations. Those totals matter when assessing coverage. A stablecoin balance in the wallet can't replace the position's debt record: proceeds may have been spent while the debt remains, or interest may have increased the amount owed.

Collateral Adjustments and Repayment Funds

Adding BTC improves collateral coverage without cancelling principal, while repaying debt reduces the obligation the remaining BTC must support. The available choice depends on whether the borrower has additional BTC or the required repayment token. Moving borrowed tokens into liquidity pools leaves the loan outstanding. A pool position's value isn't automatically a repayment balance, and obtaining the right token can involve a swap. Repayment planning also needs BTC for the transaction fee. Neither product imposes a fixed repayment date, provided the position continues meeting its collateral requirements.

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Liquidation and Redemption Outcomes

Liquidation follows inadequate collateral coverage, while MUSD redemption exchanges debt cancellation for BTC from eligible positions, including positions whose collateral remains above the liquidation threshold.

MUSD Liquidation

MUSD's September 1, 2026 liquidation rules set the threshold at a collateral ratio below 110%. Liquidation closes the position and removes its collateral. When the Stability Pool offsets the debt, collateral goes toward compensating its depositors and the liquidation caller. If the pool can't offset the debt, redistribution provides the fallback.

mUSDC Liquidation

The BTC/mUSDC market terms dated July 11, 2026 specify an 86% liquidation LTV. Crossing the market's threshold makes the position eligible for liquidation. Another party can repay debt and receive collateral, with a liquidation penalty taken from the position's BTC.

MUSD Redemption

MUSD redemption selects eligible Troves in ascending order of collateral ratio. Eligible positions remain above the liquidation threshold. During a partial redemption, debt and collateral decrease by equal dollar amounts, reducing BTC exposure even as the collateral ratio improves. A partial redemption leaves the smaller loan open. Full redemption closes it and leaves any surplus BTC claimable by the borrower.

MUSD Recovery Mode Restrictions

Recovery Mode begins when MUSD's system-wide total collateral ratio falls below 150%, restricting new borrowing even when an individual position remains above its liquidation threshold. New loans require at least 150% collateral coverage during this state. Refinancing is blocked. The published v1.1.0 contract also blocks collateral withdrawals. Additional borrowing requires added BTC to leave the loan's collateral ratio at least 150% and no lower than before. The September 1, 2026 rules retain the 110% liquidation threshold during Recovery Mode; they don't extend liquidation eligibility to otherwise healthy higher-ratio positions. An individual's collateral ratio and the system's total ratio describe different constraints, so increasing one position's coverage doesn't by itself establish that refinancing is available.

An Additional Borrow Request Without Gas

An EVM wallet's existing MUSD loan can have adequate collateral while its spendable BTC balance is empty. Consider an additional borrowing request with an otherwise acceptable preview. Get Gas spends MUSD or MEZO on Mezo; the tBTC deposit route requires funds on Ethereum.

• Confirm the EVM wallet owns the loan on Mezo Mainnet and review the proposed MUSD increase.
• If wallet BTC is below 0.000001 BTC and MUSD or MEZO covers the quote, select Get Gas and sign the token permit and swap authorization.
• If Get Gas isn't available or its quote can't be funded, first confirm the same EVM wallet has tBTC and enough ETH on Ethereum for fees. Only then deposit tBTC to its Mezo account.
• Wait for BTC receipt on Mezo and confirm the balance covers the borrowing transaction's gas estimate. Then review the updated loan terms and authorize and submit the MUSD increase.
• After the borrow completes, compare the increased debt record with the MUSD received in the wallet.

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Get Gas exchanges the quoted MUSD or MEZO amount for 0.0001 BTC, with a relay covering that swap's gas. The token cost varies with the quote. If BTC arrives while the Borrow record still shows the earlier debt, the top-up has completed but the requested MUSD increase hasn't appeared in the loan record.

Closing Debt and Releasing Collateral

Voluntary closure requires the selected repayment token to cover the outstanding principal, accrued interest and any applicable charges; the original borrowed amount alone may no longer suffice. When an MUSD loan closes voluntarily, the GasPool burns its escrowed 200 MUSD against the debt; the borrower repays the remainder. In v1.1.0, a borrowing contract retaining minting permission permits closure only outside Recovery Mode and with at least 150% system collateralization afterward. For mUSDC, full repayment makes collateral available again, and the closed position appears in borrowing history. Voluntary closure releases collateral on Mezo; moving it to Bitcoin uses a bridge-out route.

A closed MUSD position can reflect repayment, full redemption or liquidation. Those outcomes leave different rights to any remaining BTC. Selling BTC releases value without creating a continuing loan; borrowing leaves an obligation tied to the remaining collateral.

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