# Definitions

Below are common terms that will be used throughout this guide. You may want to reference these definitions while you read through the documentation.

**HEX**: Insert description of HEX and a link to the website here

**Vault**: a collateralized debt position (CDP), bound to a single wallet address.

**HEXDC:** HEX Dollar Coin is the stablecoin that may be issued from a user's collateralized debt position and freely transferred/traded to any wallet address. Intended to maintain parity with the US dollar, and can always be redeemed directly with the system. 1 HEXDC is always exchangeable for $1 USD value of HEX.

**Collateral**: any asset which a borrower must provide to take out a loan. HEX is the collateral used in Flex Protocol.

**Active collateral**: the amount of HEX collateral recorded in a Vault.

**Collateral Ratio:** The current US Dollar value of the HEX tokens locked up in the Vault divided by the amount of HEXDC minted. This ratio will determine the health of your debt. The minimum collateral ratio (CR) required is 110%, but higher ratios are recommended to avoid potential liquidation.

**ICR** = Individual Collateral Ratio for a single vault

**MCR** = Minimum Collateral Ratio

**TCR** = Total Collateral Ratio

**SP** = Stability Pool

**Active debt**: the amount of HEXDC debt recorded in a Vault.

**Total active collateral**: the sum of active collateral over all Vaults. Equal to the HEX in the ActivePool.

**Total active debt**: the sum of active debt over all Vaults. Equal to the HEXDC in the ActivePool.

**Total defaulted collateral**: the total HEX collateral in the DefaultPool

**Total defaulted debt**: the total HEXDC debt in the DefaultPool

**Entire system collateral**: the sum of the collateral in the ActivePool and DefaultPool

**Entire system debt**: the sum of the debt in the ActivePool and DefaultPool

**Total collateralization ratio** (TCR): the ratio of the dollar value of the entire system collateral at the current HEX:USD price, to the entire system debt

**Critical collateralization ratio** (CCR): 150%. When the TCR is below the CCR, the system enters Recovery Mode.

**Borrower**: an externally-owned account or contract that locks collateral in a Vault and issues HEXDC tokens to their own address. They “borrow” HEXDC tokens against their HEX collateral.

**Depositor**: an externally owned account or contract that has assigned HEXDC tokens to the Stability Pool, in order to earn returns from liquidations, and receive FLEX token rewards.

**Redemption**: the act of swapping HEXDC tokens with the system, in return for an equivalent value of HEX. Any account with a HEXDC token balance may redeem them, whether or not they are a borrower.

When HEXDC is redeemed for HEX, the HEX is always withdrawn from the lowest collateral Vaults, in ascending order of their collateralization ratio. A redeemer can not selectively target Vaults with which to swap HEXDC for HEX.

**Repayment**: when a borrower sends HEXDC tokens to their own Vault, reducing their debt, and increasing their collateralization ratio.

**Retrieval**: when a borrower with an active Vault withdraws some or all of their HEX collateral from their own Vault, either reducing their collateralization ratio, or closing their Vault (if they have zero debt and withdraw all their HEX)

**Liquidation**: the act of force-closing an undercollateralized Vault and redistributing its collateral and debt. When the Stability Pool is sufficiently large, the liquidated debt is offset with the Stability Pool, and the HEX is distributed to depositors. If the liquidated debt can not be offset with the Pool, the system redistributes the liquidated collateral and debt directly to the active Vaults with >110% collateralization ratio.

Liquidation functionality is permissionless and publicly available – anyone may liquidate an undercollateralized Vault, or batch liquidate Vaults in ascending order of collateralization ratio.

**Collateral Surplus**: The difference between the dollar value of a Vault's HEX collateral, and the dollar value of its HEXDC debt. In a full liquidation, this is the net gain earned by the recipients of the liquidation.

**Offset**: cancellation of liquidated debt with HEXDC in the Stability Pool, and assignment of liquidated collateral to Stability Pool depositors, in proportion to their deposit.

**Redistribution**: assignment of liquidated debt and collateral directly to active Vaults, in proportion to their collateral.

**Pure offset**: when a Vault's debt is entirely canceled with HEXDC in the Stability Pool, and all of it's liquidated HEX collateral is assigned to Stability Providers.

**Mixed offset and redistribution**: When the Stability Pool HEXDC only covers a fraction of the liquidated Vault's debt. This fraction of debt is cancelled with HEXDC in the Stability Pool, and an equal fraction of the Vault's collateral is assigned to depositors. The remaining collateral and debt is redistributed directly to active Vaults.

**Gas compensation**: A refund, in HEXDC and HEX, automatically paid to the caller of a liquidation function, intended to at least cover the gas cost of the transaction. Designed to ensure that liquidators are not dissuaded by potentially high gas costs.
