In our introductory post, we explained what Mosaic Protocol is and why we're building it. Now it's time to get practical. This post walks through exactly how borrowing works on Mosaic — from depositing your first REEF to managing an open position — so that when testnet goes live, you'll be ready to jump in with confidence.

If you've never used a lending protocol before, don't worry. We'll explain everything from the ground up.

Borrowing on Mosaic works like a collateralized loan. You lock up an asset you already own (REEF) and borrow a stablecoin (MEUR) against it. As long as your collateral maintains enough value relative to your debt, your position stays open and you owe no interest. When you want your REEF back, you repay the MEUR and close the position. That's it.

The key difference between Mosaic and a traditional loan is that there are no banks, no credit checks, no applications, and no ongoing interest charges. Everything is handled by smart contracts on Reef Chain. You interact directly with the protocol.

A Trove is your individual borrowing position on Mosaic. Think of it as a personal vault. It holds two balances: your REEF collateral on one side, and your MEUR debt on the other. Every borrower has their own Trove, and you can adjust both sides of the balance at any time — adding more collateral, withdrawing some, borrowing more MEUR, or repaying what you owe.

You can only have one Trove per wallet address. If you want multiple positions, you'd need to use separate wallets.

Here's what happens when you borrow MEUR on Mosaic.

Step 1: Connect your wallet. Navigate to the Mosaic frontend at mosaic.markets and connect your Reef Chain wallet. You'll need REEF tokens in your wallet to proceed.

Step 2: Choose how much REEF to deposit. This is your collateral. The more REEF you deposit, the higher your collateral ratio and the safer your position. You can always add more later.

Step 3: Choose how much MEUR to borrow. The protocol enforces a minimum collateral ratio of 110%, meaning the euro value of your REEF must be at least 1.1x the value of the MEUR you borrow. There is also a minimum debt of 200 MEUR — you can't open a Trove for less than that.

Step 4: Review the fees. Mosaic charges a one-time borrowing fee that ranges from 0.5% to 5%, depending on recent system activity. In most conditions, this fee sits at or near 0.5%. The fee is added to your debt, not deducted from your wallet. Additionally, a 2 MEUR Liquidation Reserve is set aside from your debt — think of it as a refundable deposit that covers the gas cost of a potential liquidation. You get it back when you close your Trove.

Step 5: Confirm the transaction. Once you approve the transaction in your wallet, your Trove is open. You'll see your MEUR balance in your wallet and your Trove's collateral ratio displayed on the dashboard.

Let's say REEF is trading at €0.01 and you deposit 500,000 REEF into a Trove. That's €5,000 worth of collateral.

You decide to borrow 2,500 MEUR. Your collateral ratio is 200% (€5,000 / €2,500) — well above the 110% minimum and comfortably above the 150% Recovery Mode threshold.

Assuming the borrowing fee is at its minimum of 0.5%, the protocol adds 12.50 MEUR to your debt (0.5% of 2,500). The 2 MEUR Liquidation Reserve is also set aside. Your total debt becomes 2,514.50 MEUR, and you receive 2,500 MEUR in your wallet.

No further fees or interest will accrue on this debt. Whether you keep your Trove open for a day or a year, 2,514.50 MEUR is what you owe — and that number doesn't change.

Your collateral ratio is the single most important number to watch as a borrower. It's calculated as:

Collateral Ratio = (Value of your REEF in EUR) / (Your MEUR Debt) × 100%

This ratio changes over time as the price of REEF fluctuates. If REEF's price goes up, your ratio improves. If it drops, your ratio falls — and if it falls below 110%, your Trove becomes eligible for liquidation.

Using the example above: you have 500,000 REEF and a debt of 2,514.50 MEUR. At €0.01 per REEF, your ratio is 200%. But if REEF drops to €0.006, your collateral is now worth €3,000, and your ratio falls to about 119%. Still above the minimum, but getting close. If it drops further to €0.0055, your ratio hits roughly 109% — below the threshold — and your Trove can be liquidated.

This is why choosing a comfortable collateral ratio when you open your Trove matters more than squeezing out maximum capital efficiency.

Liquidation means your Trove is closed by the protocol because your collateral ratio dropped below 110%. When this happens, the Stability Pool absorbs your debt and receives your REEF collateral. Your Trove is closed, and you keep the MEUR you borrowed — but you lose the REEF you deposited.

The net loss in a liquidation is roughly 9.1% of your collateral's value. That's because the system only needs to seize enough collateral to cover 110% of the debt. The small surplus, if any, is sent to a pool you can claim from later.

Liquidation is the primary risk of borrowing on Mosaic. The good news is that it's entirely avoidable — you just need to maintain a healthy collateral ratio by either depositing more REEF or repaying some of your debt when prices decline.

Recovery Mode is a system-wide mechanism that activates when the Total Collateral Ratio (TCR) of the entire Mosaic system falls below 150%. The TCR is the aggregate collateral ratio of all Troves combined.

During Recovery Mode, the liquidation rules change. Instead of just Troves below 110%, any Trove below 150% can be liquidated. This is the protocol's way of protecting overall system health during sharp market downturns.

The practical takeaway: if you want to be safe under all conditions, maintaining a collateral ratio above 150% — ideally 200% or higher — gives you a significant buffer against both normal liquidations and Recovery Mode.

Once your Trove is open, you have full flexibility to adjust it. You can:

• Add collateral if you want to increase your safety margin. Depositing more REEF raises your collateral ratio without changing your debt.

• Withdraw collateral if REEF's price has risen and your ratio is comfortably high. You can pull out some REEF as long as your ratio stays above 110% (or 150% during Recovery Mode).

• Borrow more MEUR if you need additional liquidity. This increases your debt and lowers your collateral ratio, so do this carefully.

• Repay some or all of your debt at any time. Partial repayment improves your ratio. Full repayment closes your Trove and returns all your REEF collateral plus the 2 MEUR Liquidation Reserve. Note that you can't reduce your debt below the 200 MEUR minimum — if you want to go lower than that, you'll need to close the Trove entirely.

There is no time limit on any of this. Your Trove stays open as long as you want it to, with no expiry date and no ongoing costs.

Redemptions are a separate mechanism from liquidations, and they can affect your Trove even if it's perfectly healthy.

Any MEUR holder can redeem their stablecoins for REEF collateral at face value through the protocol. When a redemption happens, it targets the Troves with the lowest collateral ratios first. If your Trove is selected, a portion of your debt is paid off and an equivalent euro value of your REEF is transferred to the redeemer.

Here's the key point: a redemption is not a penalty. Your debt decreases and your collateral decreases by roughly the same euro value, so your collateral ratio actually improves after a redemption. You don't lose money in net terms — but you do end up with less REEF in your Trove and less debt.

The best way to minimize your chance of being redeemed against is to maintain a higher collateral ratio. Redemptions work through Troves from the lowest ratio upward, so the higher your ratio, the more debt from other Troves sits in front of yours as a buffer.

There's no single right answer for what collateral ratio to use. It depends on your risk tolerance, how actively you plan to manage your Trove, and your outlook on REEF's price. Here's a general framework:

Conservative (200%+): You want peace of mind. You don't plan to check your Trove daily. You're comfortable with lower capital efficiency in exchange for a large safety buffer against both liquidation and Recovery Mode. This is a good starting point for most users.

Moderate (150%–200%): You're comfortable monitoring your position regularly and are willing to add collateral or repay debt if the market turns. You're protected against Recovery Mode at the top of this range but should be ready to act if the ratio dips toward 150%.

Aggressive (110%–150%): You're maximizing capital efficiency and are prepared to actively manage your position. You understand that even a moderate REEF price drop could push you into liquidation territory, and you're comfortable with that risk. This approach is better suited for experienced DeFi users.

Whichever approach you choose, remember: you can always adjust. Start conservative and optimize later once you're familiar with how the system behaves.

Once MEUR is in your wallet, it's yours to use however you'd like. Some possibilities:

Deposit into the Stability Pool to earn MSIC rewards and liquidation gains. This is the simplest use case and it directly supports the protocol's health.

Provide liquidity on decentralized exchanges that support MEUR trading pairs, earning swap fees in the process.

Trade MEUR against USDC or other stablecoins for on-chain forex exposure. If you believe the euro will strengthen against the dollar, holding MEUR gives you that position.

Use it as stable-value savings denominated in euros, without needing to sell your REEF.

Leverage your REEF position by borrowing MEUR, selling it for more REEF, depositing that REEF into your Trove, and borrowing again. This amplifies your exposure to REEF price movements — but it also amplifies your liquidation risk. Only do this if you fully understand the mechanics.

Mosaic is preparing for testnet on Reef Chain before the end of Q1 2026. Once testnet is live, you'll be able to open a Trove, borrow MEUR, and experience the full borrowing flow firsthand with test tokens.

In our next post, we'll cover the other side of the protocol: the Stability Pool — how it works, how it earns, and why it's the engine that keeps Mosaic running.

Stay connected:

• Website: mosaic.markets

• Documentation: docs.mosaic.markets

• Discord: Join the server

• Telegram: Join the community

• X (Twitter): @MosaicProtocol

Mosaic Protocol — Decentralized borrowing. Euro stability. Built for chains that need it.

In our introductory post, we explained what Mosaic Protocol is and why we're building it. Now it's time to get practical. This post walks through exactly how borrowing works on Mosaic — from depositing your first REEF to managing an open position — so that when testnet goes live, you'll be ready to jump in with confidence.

If you've never used a lending protocol before, don't worry. We'll explain everything from the ground up.

Borrowing on Mosaic works like a collateralized loan. You lock up an asset you already own (REEF) and borrow a stablecoin (MEUR) against it. As long as your collateral maintains enough value relative to your debt, your position stays open and you owe no interest. When you want your REEF back, you repay the MEUR and close the position. That's it.

The key difference between Mosaic and a traditional loan is that there are no banks, no credit checks, no applications, and no ongoing interest charges. Everything is handled by smart contracts on Reef Chain. You interact directly with the protocol.

A Trove is your individual borrowing position on Mosaic. Think of it as a personal vault. It holds two balances: your REEF collateral on one side, and your MEUR debt on the other. Every borrower has their own Trove, and you can adjust both sides of the balance at any time — adding more collateral, withdrawing some, borrowing more MEUR, or repaying what you owe.

You can only have one Trove per wallet address. If you want multiple positions, you'd need to use separate wallets.

Here's what happens when you borrow MEUR on Mosaic.

Step 1: Connect your wallet. Navigate to the Mosaic frontend at mosaic.markets and connect your Reef Chain wallet. You'll need REEF tokens in your wallet to proceed.

Step 2: Choose how much REEF to deposit. This is your collateral. The more REEF you deposit, the higher your collateral ratio and the safer your position. You can always add more later.

Step 3: Choose how much MEUR to borrow. The protocol enforces a minimum collateral ratio of 110%, meaning the euro value of your REEF must be at least 1.1x the value of the MEUR you borrow. There is also a minimum debt of 200 MEUR — you can't open a Trove for less than that.

Step 4: Review the fees. Mosaic charges a one-time borrowing fee that ranges from 0.5% to 5%, depending on recent system activity. In most conditions, this fee sits at or near 0.5%. The fee is added to your debt, not deducted from your wallet. Additionally, a 2 MEUR Liquidation Reserve is set aside from your debt — think of it as a refundable deposit that covers the gas cost of a potential liquidation. You get it back when you close your Trove.

Step 5: Confirm the transaction. Once you approve the transaction in your wallet, your Trove is open. You'll see your MEUR balance in your wallet and your Trove's collateral ratio displayed on the dashboard.

Let's say REEF is trading at €0.01 and you deposit 500,000 REEF into a Trove. That's €5,000 worth of collateral.

You decide to borrow 2,500 MEUR. Your collateral ratio is 200% (€5,000 / €2,500) — well above the 110% minimum and comfortably above the 150% Recovery Mode threshold.

Assuming the borrowing fee is at its minimum of 0.5%, the protocol adds 12.50 MEUR to your debt (0.5% of 2,500). The 2 MEUR Liquidation Reserve is also set aside. Your total debt becomes 2,514.50 MEUR, and you receive 2,500 MEUR in your wallet.

No further fees or interest will accrue on this debt. Whether you keep your Trove open for a day or a year, 2,514.50 MEUR is what you owe — and that number doesn't change.

Your collateral ratio is the single most important number to watch as a borrower. It's calculated as:

Collateral Ratio = (Value of your REEF in EUR) / (Your MEUR Debt) × 100%

This ratio changes over time as the price of REEF fluctuates. If REEF's price goes up, your ratio improves. If it drops, your ratio falls — and if it falls below 110%, your Trove becomes eligible for liquidation.

Using the example above: you have 500,000 REEF and a debt of 2,514.50 MEUR. At €0.01 per REEF, your ratio is 200%. But if REEF drops to €0.006, your collateral is now worth €3,000, and your ratio falls to about 119%. Still above the minimum, but getting close. If it drops further to €0.0055, your ratio hits roughly 109% — below the threshold — and your Trove can be liquidated.

This is why choosing a comfortable collateral ratio when you open your Trove matters more than squeezing out maximum capital efficiency.

Liquidation means your Trove is closed by the protocol because your collateral ratio dropped below 110%. When this happens, the Stability Pool absorbs your debt and receives your REEF collateral. Your Trove is closed, and you keep the MEUR you borrowed — but you lose the REEF you deposited.

The net loss in a liquidation is roughly 9.1% of your collateral's value. That's because the system only needs to seize enough collateral to cover 110% of the debt. The small surplus, if any, is sent to a pool you can claim from later.

Liquidation is the primary risk of borrowing on Mosaic. The good news is that it's entirely avoidable — you just need to maintain a healthy collateral ratio by either depositing more REEF or repaying some of your debt when prices decline.

Recovery Mode is a system-wide mechanism that activates when the Total Collateral Ratio (TCR) of the entire Mosaic system falls below 150%. The TCR is the aggregate collateral ratio of all Troves combined.

During Recovery Mode, the liquidation rules change. Instead of just Troves below 110%, any Trove below 150% can be liquidated. This is the protocol's way of protecting overall system health during sharp market downturns.

The practical takeaway: if you want to be safe under all conditions, maintaining a collateral ratio above 150% — ideally 200% or higher — gives you a significant buffer against both normal liquidations and Recovery Mode.

Once your Trove is open, you have full flexibility to adjust it. You can:

• Add collateral if you want to increase your safety margin. Depositing more REEF raises your collateral ratio without changing your debt.

• Withdraw collateral if REEF's price has risen and your ratio is comfortably high. You can pull out some REEF as long as your ratio stays above 110% (or 150% during Recovery Mode).

• Borrow more MEUR if you need additional liquidity. This increases your debt and lowers your collateral ratio, so do this carefully.

• Repay some or all of your debt at any time. Partial repayment improves your ratio. Full repayment closes your Trove and returns all your REEF collateral plus the 2 MEUR Liquidation Reserve. Note that you can't reduce your debt below the 200 MEUR minimum — if you want to go lower than that, you'll need to close the Trove entirely.

There is no time limit on any of this. Your Trove stays open as long as you want it to, with no expiry date and no ongoing costs.

Redemptions are a separate mechanism from liquidations, and they can affect your Trove even if it's perfectly healthy.

Any MEUR holder can redeem their stablecoins for REEF collateral at face value through the protocol. When a redemption happens, it targets the Troves with the lowest collateral ratios first. If your Trove is selected, a portion of your debt is paid off and an equivalent euro value of your REEF is transferred to the redeemer.

Here's the key point: a redemption is not a penalty. Your debt decreases and your collateral decreases by roughly the same euro value, so your collateral ratio actually improves after a redemption. You don't lose money in net terms — but you do end up with less REEF in your Trove and less debt.

The best way to minimize your chance of being redeemed against is to maintain a higher collateral ratio. Redemptions work through Troves from the lowest ratio upward, so the higher your ratio, the more debt from other Troves sits in front of yours as a buffer.

There's no single right answer for what collateral ratio to use. It depends on your risk tolerance, how actively you plan to manage your Trove, and your outlook on REEF's price. Here's a general framework:

Conservative (200%+): You want peace of mind. You don't plan to check your Trove daily. You're comfortable with lower capital efficiency in exchange for a large safety buffer against both liquidation and Recovery Mode. This is a good starting point for most users.

Moderate (150%–200%): You're comfortable monitoring your position regularly and are willing to add collateral or repay debt if the market turns. You're protected against Recovery Mode at the top of this range but should be ready to act if the ratio dips toward 150%.

Aggressive (110%–150%): You're maximizing capital efficiency and are prepared to actively manage your position. You understand that even a moderate REEF price drop could push you into liquidation territory, and you're comfortable with that risk. This approach is better suited for experienced DeFi users.

Whichever approach you choose, remember: you can always adjust. Start conservative and optimize later once you're familiar with how the system behaves.

Once MEUR is in your wallet, it's yours to use however you'd like. Some possibilities:

Deposit into the Stability Pool to earn MSIC rewards and liquidation gains. This is the simplest use case and it directly supports the protocol's health.

Provide liquidity on decentralized exchanges that support MEUR trading pairs, earning swap fees in the process.

Trade MEUR against USDC or other stablecoins for on-chain forex exposure. If you believe the euro will strengthen against the dollar, holding MEUR gives you that position.

Use it as stable-value savings denominated in euros, without needing to sell your REEF.

Leverage your REEF position by borrowing MEUR, selling it for more REEF, depositing that REEF into your Trove, and borrowing again. This amplifies your exposure to REEF price movements — but it also amplifies your liquidation risk. Only do this if you fully understand the mechanics.

Mosaic is preparing for testnet on Reef Chain before the end of Q1 2026. Once testnet is live, you'll be able to open a Trove, borrow MEUR, and experience the full borrowing flow firsthand with test tokens.

In our next post, we'll cover the other side of the protocol: the Stability Pool — how it works, how it earns, and why it's the engine that keeps Mosaic running.

Stay connected:

• Website: mosaic.markets

• Documentation: docs.mosaic.markets

• Discord: Join the server

• Telegram: Join the community

• X (Twitter): @MosaicProtocol

Mosaic Protocol — Decentralized borrowing. Euro stability. Built for chains that need it.