> For the complete documentation index, see [llms.txt](https://paydax.gitbook.io/paydax-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://paydax.gitbook.io/paydax-docs/paydax-whitepaper-v6/faqs.md).

# FAQs

1. ### How does Paydax work?

**Answer** — Paydax operates through a simple, four-step process:

* **Step 1: Deposit Collateral** — Users start by locking approved crypto assets into a secure digital vault
* **Step 2: Borrow Blue-Chip Assets** — Once assets are deposited, users can borrow blue-chip cryptocurrencies like USDC, ETH, or BTC
* **Step 3: Maintain Collateral Safety Score** — Users must keep their collateral safety score strong, ensuring the health of their digital vault
* **Step 4: Extra Protection** — The platform utilizes a community-backed Stability Pool, adding a layer of security for all users<br>

2. ### What is the Collateral Safety Score?

**Answer** — The Collateral Safety Score is a measure of how secure your loan is:

* A high score means your assets are safe
* If the score drops too low (due to a decrease in collateral value), the system may sell some of your assets to maintain platform stability

#### Tips to Stay Safe

* Keep your digital vault well-funded
* Avoid borrowing too much
* Regularly monitor your Collateral Safety Score

3. ### How does Paydax manage risk and prevent users from being liquidated too easily?

**Answer** — Paydax uses advanced risk management tools:

* The platform constantly tracks the value of your assets in real time, similar to a live price tracker
* If prices drop suddenly, built-in protection layers called volatility buffers help prevent immediate liquidation, providing a safety net and allowing users time to respond during volatile market conditions

4. ### How does PDP maintain its value and utility in the ecosystem?

**Answer** — PDP maintains its value through multiple utility mechanisms:

* **Governance Rights:** Token holders vote on protocol decisions and parameter changes
* **Fee Sharing:** Stakers receive a portion of protocol revenue
* **Tier Benefits:** Higher holdings unlock better borrowing terms and exclusive features
* **Stability Pool Rewards:** Earn liquidation bonuses by providing backstop liquidity

5. ### How do people earn rewards on Paydax?

**Answer** — There are three main ways to earn rewards:

* **Lenders:** Earn stable yields (4-6% APY) by supplying assets to lending pools
* **Stability Pool Participants:** Stake PDP to support the system and receive liquidation rewards
* **General Users:** Earn PDP tokens through various ecosystem activities and governance participation

6. ### Is Paydax safe? Are there security checks?

**Answer** — Yes! Paydax is committed to safety:

* Before launch, all code undergoes thorough security audits by professionals to identify and fix any bugs or vulnerabilities
* Additional checks are planned for complex asset types, such as LP or staked tokens, to ensure robust security and prevent exploits

7. ### How does Paydax ensure legal compliance and security for real-world assets (RWAs)?

**Answer** — Paydax partners with licensed custodians and compliant service providers:

* All real-world assets, like gold or real estate, are managed according to regional laws and regulations
* Users may be required to complete basic identity verification (KYC) when dealing with RWAs
* These assets are securely held by regulated custodians, ensuring that tokenized assets remain fully backed by tangible, verifiable value

8. ### What are the main differences between Paydax and other lending platforms?

**Answer** — Paydax differs from traditional DeFi lending platforms in several key ways:

* **Fixed Interest Rates:** Predictable borrowing costs instead of variable rates
* **Broad Collateral Support:** Accept exotic assets like LP tokens, staked tokens, and RWAs
* **Utility Token Model:** PDP provides governance and ecosystem benefits rather than being purely speculative
* **Tier-Based Benefits:** Rewards scale with token holdings and ecosystem participation<br>

9. ### What are "circuit breakers" and how do they work?

**Answer** — Circuit breakers are an emergency control measure designed to protect the protocol during extreme market volatility. They automatically trigger if collateral prices drop rapidly or system stress reaches critical levels, which can temporarily pause certain protocol functions to prevent cascading issues and unfair liquidations.


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