RWA Token Staking (Stability Pool and Liquidations)

What is the Stability Pool?

The Stability Pool allows users to stake Lendr real world asset tokens, they are rewarded for doing so with Lendr reward tokens and liquidation returns. Reward token distributions are greatest at launch and taper down over 5 years, rewarding early adopters.

The Stability Pool is the first line of defense in maintaining system solvency. It achieves that by acting as the source of liquidity to repay debt from liquidated Troves—ensuring that the total real world asset token supply always remains backed.

When any Trove is liquidated, an amount of real world asset tokens corresponding to the remaining debt of the Trove is burned from the Stability Pool’s balance to repay its debt. In exchange, the entire collateral from the Trove is transferred to the Stability Pool and distributed to stakers.

This event generally produces a net positive gain for stability pool stakers as the collateral is worth more than the tokens burned (~110%).

The Stability Pool is funded by users transferring real world asset tokens into it (called Stability Providers). Over time Stability Providers lose a pro-rata share of their real world asset token deposits, while gaining a pro-rata share of the liquidated collateral.

However, because Troves are likely to be liquidated at just below 110% collateral ratios, it is expected that Stability Providers will receive a greater dollar value of collateral relative to the debt they pay off.

Why should I deposit my real world asset tokens into the Stability Pool?

Stability Providers will earn liquidation rewards (see below) and receive early adopter rewards in the form of reward tokens.

What are liquidations?

To ensure that the entire real world asset token supply remains fully backed by collateral, Troves that fall under the minimum collateral ratio of 110% will be closed (liquidated).

The debt of the Trove is canceled and absorbed by the Stability Pool and its collateral is distributed among Stability Providers.

The owner of the Trove still keeps the full amount of real world asset tokens borrowed but loses ~10% value overall, hence it is critical to always keep the ratio above 110%, ideally above 150%.

Who can liquidate Troves?

Anybody can liquidate a Trove as soon as it drops below the Minimum Collateral Ratio of 110%. The initiator receives 0.5% of the Trove's collateral and gas compensation (200 real world asset tokens on Ethereum) as a reward for this service.

How am I compensated for liquidating a Trove?

The liquidation of Troves is connected with certain gas costs which the trove owner has to cover. The cost per Trove was reduced by implementing batch liquidations of up to 160 - 185 Troves but with the aim of ensuring that liquidations remain profitable even in times of soaring gas prices the protocol offers a gas compensation given by the following formula:

gas compensation = 200 real world asset tokenson Ethereum or 10 real world asset tokens on Binance Smart Chain + 0.5% of Trove's collateral

The 200 or 10 real world asset tokens are funded by a Liquidation Reserve while the variable 0.5% portion (in collateral tokens) comes from the liquidated collateral, slightly reducing the liquidation gain for Stability Providers.

How do I benefit as a Stability Provider from liquidations?

As liquidations happen just below a collateral ratio of 110%, you will most likely experience a net gain whenever a Trove is liquidated.

Here is an example using USDL on BSC:

Let’s say there is a total of 1,000,000 USDL in the Stability Pool and your deposit is 100,000 USDL.

Now, a Trove with a debt of 200,000 USDL and collateral of 400 BNB is liquidated at a BNB price of $545, and thus at a collateral ratio of 109% (= 100% * (400 * 545) / 200,000).

Given that your pool share is 10%, your deposit will go down by 10% of the liquidated debt (20,000 USDL), i.e. from 100,000 to 80,000 USDL. In return, you will gain 10% of the liquidated collateral, i.e. 40 BNB, which is currently worth $21,800. Your net gain from the liquidation is $1,800.

Note that depositors can immediately withdraw the collateral received from liquidations and sell it to reduce their exposure to collateral tokens (for an exception see Can I withdraw my deposit whenever I want?).

How do I benefit as a Stability Provider from early adopter rewards?

First, you need to open a Trove, borrow real world asset tokens, and deposit it to the Stability Pool. After making your deposit, you will start accumulating reward tokens proportional to the size of your deposit on a continuous basis.

The reward is calculated according to the rewards schedule and the kickback rate of the front end that you used for making the deposit (99% for the official front end).

Rewards will be the highest for early adopters of the system. At any point in time, you can withdraw your pending rewards to your wallet address.

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, withdrawals are temporarily suspended whenever there are liquidatable Troves with a collateral ratio below 110% that have not been liquidated yet.

What oracle are you using to determine the price of collateral tokens?

The protocol uses Chainlink price feeds, falling back to the Pyth oracles under the following conditions:

• Chainlink price has not been updated for more than 4 hours

• Chainlink response call reverts, returns an invalid price or an invalid timestamp

• The price change between two consecutive Chainlink price updates is >50%.

Can I lose money by depositing funds in the Stability Pool?

While liquidations will occur at a collateral ratio well above 100% most of the time, it is theoretically possible that a Trove 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 the real world asset tokens is trading significantly above the target peg, liquidations may become unprofitable for Stability Providers even at collateral ratios higher than 100%. However, this loss is hypothetical since the real world asset tokens is expected to return to the peg, so the “loss” only materializes if you had withdrawn your deposit and sold the real world asset tokens at a price above the target peg.

Please note that although the system is diligently audited, a hack or a bug that results in losses for the users can never be fully excluded.

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 Troves to all other existing Troves. The redistribution of debt and collateral is done in proportion to the recipient Trove's collateral amount.

Here's an example: