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Stability Pools & Liquidations
A Stability Pool helps maintain iAsset solvency by acting as the source of liquidity to repay debt from liquidated CDPs, thus intending all minted iAsset supply to remain overcollateralized.
Every supported iAsset has its own Stability Pool (e.g., iBTC Stability Pool), and is comprised of iAssets deposited by users (aka "Stability Pool stakers").
As CDPs become undercollateralized, they are eligible to be liquidated. When a liquidation occurs, iAssets deposited in their corresponding Stability Pool are burned to repay the CDP's debt, meaning that Stability Pool stakers lose a pro-rata share of their iAsset deposits while gaining a pro-rata share of the liquidated CDP's collateral.
Assuming that you already own iAssets (either via the opening of a CDP or through a purchase on the open market), you simply need to deposit your iAssets into its corresponding Stability Pool.
In addition to receiving a pro-rata share of a liquidated CDP's collateral, Stability Pool stakers earn rewards in the form of INDY tokens.
A lower iAsset balance indicates that liquidations occurred and that a portion of your iAsset deposit was burned. In exchange, you will have received a pro-rata share of the liquidated CDP's collateral.
Yes, there are 3 fees associated with Stability Pools.
- There is a 5 ADA fee when depositing iAssets into a Stability Pool for the first time. This fee will be redistributed to all Stability Pool providers.
- There is a 1 ADA fee for depositing, withdrawing or claiming rewards. This fee will be redistributed to all Stability Pool providers.
- There is a 2% fee taken from the total amount of ADA rewards a user is owed (which corresponds to the collateral seized from liquidated CDPs). This fee will be redistributed to INDY stakers and is a protocol parameter, meaning it can be modified by the DAO.
Liquidations can occur when CDPs become undercollateralized. Liquidations are performed by users of the protocol as well as a Liquidation Bot, operated by the Indigo Labs.
Liquidations are a two-step process:
- 1.Freeze the CDP. Upon freezing, a CDP is no longer usable by its former owner. The former owner loses all access and rights to the CDP.
- 2.Liquidate the CDP. The CDP debt is repaid by burning iAssets from a Stability Pool, and the CDP's collateral is distributed proportionally to Stability Pool stakers.
Stability Pool stakers are incentivized to liquidate CDPs since they can earn a share of the CDP's collateral. Under normal circumstances, the value of the collateral earned may be greater than the value of the canceled debt, because a liquidated CDP is likely to have a collateral value above 100% (the value of the iAsset).