Stability pool

Maintaining veUSD peg

What is the Stability pool?

The Stability Pool is an additional line of defense in maintaining system solvency. It acts as the source of liquidity to repay debt from liquidated Vaults, ensuring that the total veUSD supply always remains backed.

The Stability Pool is funded by Stability Providers depositing veUSD to receive liquidated tokens. When liquidations occur, the Stability Providers lose a pro-rata share of their veUSD deposits, while gaining a pro-rata share of the liquidated collateral.

As Vaults are liquidated at a collateral-to-debt ratio of 110%, it is expected that Stability Pool Providers will receive a greater USD-value of collateral relative to the debt they pay off.

How does it work?

When a Vault is liquidated in the Stability Pool, the amount of veUSD corresponding to the remaining Vault debt is burned from the Stability Pool’s balance to repay its debt. In exchange, the entire collateral from the Vault is pro-rata distributed among Stability Providers.

Stability Providers can immediately withdraw the collateral received from liquidations and sell it to reduce their exposure to collateral tokens.

Stability Providers may receive any whitelisted collateral assets during liquidations.

If a user borrows against their own ETH tokens and decides to deposit some of the borrowed veUSD into the Stability Pool, they will participate in all liquidations, not just ETH. The users who do not wish to get exposed to certain assets can swap those assets immediately after the liquidation.

Why should i deposit veUSD to the Stability pool?

Stability Providers will make liquidation gains from liquidated vaults. As liquidations happen just below a collateral ratio of 110%, users will most likely experience a net gain whenever a vault is liquidated.

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

If the Stability Pool is empty, the system uses a secondary liquidation mechanism called redistribution. In such a case, the system redistributes the debt and collateral from liquidated Vaults to all other existing Vaults. The redistribution of debt and collateral is done in proportion to the recipient Vault collateral amount.

Can i withdraw my deposit whenever i want?

As a general rule, you can withdraw the deposit made to the Stability Pool at any time. There is no minimum lockup duration. However, you cannot withdraw while there are pending liquidatable vaults.

Can i lose money by depositing funds to the Stability Pool?

While liquidations will occur at a collateral ratio well above 100% most of the time, it is theoretically possible that a vault gets liquidated below 100% in a flash crash or due to an oracle failure. In such a case, you may experience a loss since the collateral gain will be smaller than the reduction of your deposit.

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