Liquidity Pool

What is the Stability Pool?

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 Vaults—ensuring that the total TAL supply always remains backed. When any Vault is liquidated, an amount of TAL corresponding to the remaining debt of the Vault is burned from the Stability Pool’s balance to repay its debt. In exchange, the entire collateral from the Vault is transferred to the Stability Pool. The Stability Pool is funded by users transferring TAL into it (called Stability Providers). Over time Stability Providers lose a pro-rata share of their TAL deposits while gaining a pro-rata share of the liquidated collateral. However, because Vaults 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 TAL to the Stability Pool?

Stability Providers will make liquidation gains (see below) and receive early adopter rewards in the form of ckBTC tokens.

What are liquidations?

To ensure that the entire stablecoin supply remains fully backed by collateral, Vaults that fall under the minimum collateral ratio of 110% will be closed (liquidated). The debt of the Vault is canceled and absorbed by the Stability Pool and its collateral is distributed among Stability Providers. The owner of the Vault still keeps the full amount of TAL borrowed but loses ~10% value overall hence it is critical to always keep the ratio above 110%, ideally above 150%.

Who can liquidate Vaults?

The liquidation of Vaults is done automatically as soon as the collateral ratio of a vault falls below 110%.

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 Vault is liquidated. Let’s say there is a total of 1,000,000 TAL in the Stability Pool and your deposit is 100,000 TAL. Now, a Vault with a debt of 200,000 TAL and collateral of 400 ckBTC is liquidated at a Bitcoin 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 TAL), i.e. from 100,000 to 80,000 TAL. In return, you will gain 10% of the liquidated collateral, i.e. 40 ckBTC, 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 ckBTC, if the USD value of ckBTC is expected to decrease.

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

First you need to open a Vault, borrow TAL, and deposit it into the Stability Pool. After making your deposit, you will be added to a list for future airdrops.

Can I withdraw my rewards whenever I want?

At any point in time, you can withdraw your pending rewards to your principal.

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 Vaults with a collateral ratio below 110% that have not been liquidated yet.

What oracle are you using to determine the price of Bitcoin?

The protocol uses the exchange rate canister ckBTC:USD price feed. The protocol gets frozen if the price has not been updated in the last 10 minutes, it's unfrozen as soon as the Bitcoin price gets updated.

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

Please note that although the system is diligently tested, 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 Vaults to all other existing Vaults. The redistribution of debt and collateral is done in proportion to the recipient Vault's collateral amount.