🛡️Stability Pool

What is Stability Pool?

The Stability Pool provides liquidity to repay the debt of liquidated troves, ensuring that the total wenUSD supply remains fully over-backed.

When a Trove is liquidated, an amount of wenUSD equal to its remaining debt is burned from the Stability Pool's balance to repay that debt. The entire collateral from the liquidated trove is then transferred to the Stability Pool.

The Stability Pool is funded by users depositing wenUSD into it, known as Stability Providers. Over time, Stability Providers lose a proportional share of their wenUSD deposits while gaining a proportional share of the liquidated collateral.

However, since Vaults are typically liquidated just below a 115% collateral ratio, Stability Providers are expected to receive collateral worth more than the debt they repay.

Why should I be a Stability Provider?

Here is a summary of the benefits of depositing wenUSD into the Stability Pool:

  • Liquidation gains - As a Stability Provider, you receive a portion of these liquidation gains. The more wenUSD you deposit, the larger your share of these gains.

  • Earn rewards - Stability Providers receive rewards in the form of esWEN tokens, the governance token of the system.

  • Support the system - By depositing wenUSD, you are providing stability to the system and helping maintain wenUSD's peg to $1. This supports the overall health of the protocol.

In general, depositing wenUSD into the Stability Pool can be a good way to earn rewards from participating in the system.

How can I benefit as a Stability Provider from liquidations?

Since liquidations happen when the collateral ratio drops just below 115%, you will likely make a profit whenever a Trove is liquidated.

For example,

  • Alice has 100,000 wenUSD in Stability Pool with a total of 1,000,000 wenUSD

  • Bob's Trove with 500,000 wenUSD minted and 285 wstETH collateral is liquidated at wstETH price of $2,000, giving it a collateral ratio of 114% ((285*2,000)/500,000)

  • Stability Pool will be reduced to 500,000 wenUSD due to the liquidation but rewarded by Bob's 285 wstETH which equals to 570,000 wenUSD

  • Since Alice owns 50% of the pool, her deposit will decrease by 50% from 500,000 to 250,000 wenUSD. In return, Alice gains 50% of Bob's collateral which is 142.5 stETH

  • As a result, Alice's net profit is 142.5*2,000-250,000 = $35,000

Stability Provider can immediately withdraw the collateral received from liquidations and sell it to reduce their exposure to these assets.

How do I benefit as a Stability Provider from participants rewards?

To benefit from participants rewards as a Stability Provider, first you need to open a Trove account. Then, mint wenUSD and deposit that into the Stability Pool. Once you make your deposit, you will immediately start earning a reward (in esWEN) in proportion to your deposit.

esWEN reward is calculated based on the rewards schedule. The longer you provide stability and the more wenUSD you deposit, the more esWEN tokens you will earn as rewards.

At any time, you can withdraw the rewards you have accumulated so far to your Ethereum address.

How can I withdraw my deposit and rewards?

Generally speaking, you can take out the wenUSD deposited into the Stability Pool or your rewards directly in the app at any moment. There is no minimum period that the funds must remain.

However, withdrawals are briefly halted whenever there are Troves with collateral ratios under 115% that have not yet been liquidated.

Is there any chance to lose money being a Stability Provider?

While liquidations typically happen when the collateral ratio is well above 100%, liquidations below 100% can only occur during flash crashes or due to oracle failures. In this scenario, you could lose money as the collateral gained will be less than the deposit reduced.

If wenUSD is trading above $1, liquidations may become unprofitable for Stability Providers even at collateral ratios higher than 100%. However, this loss is hypothetical since wenUSD is expected to return to $1 peg, so the "loss" only materializes if you had withdrawn and sold the wenUSD at above $1.

Please note that although the system is originated from Liquity and is diligently audited, losses for users due to a hack or bug can never be fully ruled out.

What happens if the Stability Pool is empty when liquidations occur?

When the Stability Pool has no funds, the system uses a backup liquidation method called redistribution. In this situation, the system redistributes the debt and collateral from liquidated Troves to all the remaining Troves. The debt and collateral are redistributed proportionally based on how much collateral each recipient Trove has.

Last updated