🥞Adding/Removing Collaterals

Adding Collaterals

Collaterals can be added to the WEN protocol through a proposal and voting process. If the majority of the governance token holders agree, a new collateral type can be added. Once a new collateral type is added, it can be used to secure loans and participate in other system functionalities.

Implementation

A new collateral is added by calling the function deployNewInstance on the Factory contract. A collateral type cannot be added more than once. Upon execution of the aforementioned function the following actions are performed:

1. A new Account Manager and Sorted Accounts are deployed

2. The collateral is allowed into the Stability Pool, Borrower Operations, Liquidation Manager and mkUSD contracts

3. Initial parameters for that collateral are set within the protocol

Removing Collaterals

Sometimes, it may become necessary to remove a collateral from the WEN protocol. This process is known as sunsetting a collateral. Sunsetting is initiated via a governance vote and has several implications:

1. Collateral Handoff: When a collateral type is being sunset, collateral handoff from Account Manager to the stability Pool for any liquidation is disabled. Instead, only redistribution of collateral and debt among vaults for the same collateral type is allowed.

2. Annual Fee Adjustment: The annual fee for the sunset collateral is increased to 50% APR. This high annual fee is intended to incentivize the repayment of loans backed by the sunset collateral.

3. Redemption Fees: The redemption fees for the sunset collateral are removed. This makes it more attractive for users to redeem wenUSD against that collateral.

4. New Loans: The creation of new loans backed by the sunset collateral is disabled. This helps to gradually phase out the use of the sunset collateral.

Stability Pool Implications

The stability pool plays a critical role in maintaining the stability of the WEN protocol. During the sunsetting of a collateral, certain rules apply to the stability pool:

1. Collateral Withdrawals: Withdrawals for the sunset collateral from the stability pool are halted and all balances cleared 180 days after the initiation of the sunsetting process.

2. Collateral Index Reuse: After the sunset period has ended, the collateral index used to identify a collateral in the stability pool can be reused.