Stability Pool

What is the Stability Pool?

The Stability Pool is a mechanism that $STAR users can utilize to earn liquidation fees. Stability pools are essential for CDPs, ensuring that the supply of $STAR is always backed up.

When any Nebula Vault is liquidated, the amount of $STAR corresponding to the debt is burned from the Stability Pool in exchange for the collateral from the vault to the Stability Pool.

The Stability Pool is funded by users depositing their $STARs.

Over time, users' $STAR deposits are burned in exchange for a share of liquidated collateral as well as a portion of $oPREON emissions.

For example:

A user's ETH is liquidated, and the collateral is distributed to stability providers. Because every loan is overcollateralized, every time Stability Providers redeem collateral in exchange for burning STAR, they earn a net profit from the transaction.

Why should I deposit STAR into the Stability Pool?

The LTV of the type of collateral being liquidated on Preon is inversely correlated with liquidation earnings. For instance, users can anticipate buying $WETH at a roughly 10% discount when a WETH vault is liquidated.

To ensure that the entire $STAR supply remains fully backed by collateral, nebula vaults that go over the maximum LTV will be closed (liquidated).

The debt of the Nebula Vault is cancelled and absorbed by the stability pool, with its collateral distributed among stability providers.

The full amount of $STAR borrowed is still in the possession of the vault's owner. Although the user loses value overall, it is important to constantly maintain a ratio higher than the rate specified by the protocol in order to prevent being liquidated.

Who can liquidate Nebula Vaults?

Anybody can liquidate a vault as soon as it goes above the maximum LTV defined by the protocol.

Can I withdraw my deposit whenever I want?

You can generally take your deposit from the Stability Pool out whenever you want. However, withdrawals are momentarily halted whenever there are unliquidated liquidatable vaults with an LTV greater than the protocol's threshold.

Can I lose funds by depositing funds to the Stability Pool?

Although reserved for unlikely scenarios, it is possible in theory that a vault gets liquidated below 100% CDR in flash crashes or oracle failures. In cases like this, you may experience a loss due to the collateral gain being below the deposit reduction.

If STAR trades above $1, liquidations may also become unprofitable. Preon's Stability Pool is built on audited codebases, but contract risks are always present.

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