<!--
Parallel Documentation — this page, as markdown.
Index of every page: https://docs.parallel.best/llms.txt
The whole documentation in one file: https://docs.parallel.best/llms-full.txt
-->

# Classic Vaults

:::warning
You're reading the legacy **v2** documentation. For current Parallel features, see [v3](/products/parallel-v3).
:::

The core of the Parallel Protocol are **Vaults**. Users mint **PAR/paUSD** by depositing **collateral** such as Ether (ETH) into the Vault smart contract. The steps involved to mint new PAR/paUSD are as follows:

* A Borrower deposits collateral, automatically creating a new Vault. Based on the Vault's collateral balance, a Borrower can borrow up to a certain amount of PAR/paUSD. The Vault must be collateralized with more than a **Minimum Collateralization Ratio** (MCR) for borrowing. For example, an MCR of 150% means borrowers need 150% collateral deposited before they can borrow.
* A separate liquidation MCR (**Liquidation Ratio** (LR)) is used to calculate for liquidations. For example, an LR of 130% means Vaults with an MCR below 130% can be liquidated. Both ratios for initial borrowing and liquidations are configured per collateral type.
* The PAR smart contract mints the borrowed amount of PAR tokens to the Borrower.
* An **Origination Fee** is applied for newly created debt. (0.2% of minted amount)
* [PAR](/products/parallel-v2/stablecoins/par) & [paUSD](/products/parallel-v2/stablecoins/par-1) are ERC20 tokens that one can transfer and use normally, pegged to the EUR & USD fiat currency.
* A **Borrowing Fee** accrues over time on all active Vaults, which has to be fully repaid before the Borrower can withdraw their collateral.
* A **Health Factor** is the ratio between a vault's current and minimum MCR (or LR.) If a Vault's liquidation health factor goes below a minimum value due to market changes, profit-seeking Liquidators can liquidate the **undercollateralized** Vault to receive its collateral at a discount.
* Borrowers need to retain enough collateral in their Vaults to borrow additional funds and avoid being liquidated.
* The PAR & paUSD token are fully redeemable stablecoins. Borrowers can redeem and burn PAR/paUSD to repay their debt, close their Vault, and withdraw their collateral.
* Liquidators earn a liquidation bonus for liquidating underwater vaults.
* A **Liquidation Fee** is charged to the Borrower during liquidation, which is added to the outstanding debt.

:::info
Learn more about Vaults :

* [Depositing](/products/parallel-v2/how-it-works/vaults/depositing)
* [Borrowing](/products/parallel-v2/how-it-works/vaults/borrowing)
* [Fees](/products/parallel-v3/fees#legacy-parallel-v2-fees-par-and-pausd)
* [Withdrawing](/products/parallel-v2/how-it-works/vaults/withdrawing)
* [Repaying](/products/parallel-v2/how-it-works/vaults/repaying)
* [Liquidating](/products/parallel-v2/how-it-works/vaults/liquidating)
  :::