The tokens in each vault must be Tokens have to be whitelisted to be used as collateral, and have to maintain a minimum threshold for collateral factor to be used in opening new loans.
For example, a low risk vault might support stablecoins as collateral in addition to ETH and WBTC, while a high risk vault could support small cap altcoins and NFTs with high liquidity.
Loans on Chedda are always over-collateralized, with the loan to value ratio based on the collateral factor of the asset being used as collateral.
Token vaults can be configured to support both fungible and non-fungible tokens.
Assets in a vault are set at the time of vault creation.
The collateral that can be used in a vault is determined by the risk profile of the token. Thus, most NFTs would not be eligible to be used as collateral in low risk vaults.
Lenders deposit assets into token vaults to earn yield on their otherwise dormant assets. Borrowers deposit collateral and can take out open term loans which must be repaied with interest which goes to the lenders.
Vaults can be configured with yield strategies which deposit underutilzed assets in a vault to yield optimizing protocols. This earns additional yield for lenders.
A borrowing position can be liquidated if it becomes under-collateralized at any point. Each borrowing position has a health factor which is the ratio of the collateral value to the value of the loan. A position can get liquidated if a drop in collateral value results in the health factor dropping below 1. A position could be partially or fully liquidated in order to restore the health factor above 1. When a position is liquidated, the collateral is auctioned off to repay the value of a part of the loan.