Stability Pool and Liquidations

Introduction to the Stability Pool

The Stability Pool is a essential part of the HLiquity protocol, serving as the first line of defense in maintaining system solvency. It provides liquidity to repay debt from liquidated Troves, ensuring that the total HCHF supply is consistently supported.

Role of Stability Providers

Stability Providers are users who transfer HCHF into the Stability Pool. Over time, they lose a pro-rata share of their HCHF deposits but gain a pro-rata share of the liquidated collateral. Because Troves are likely to be liquidated at just below 110% collateral ratios, Stability Providers are expected to receive a greater value of collateral relative to the debt they pay off.

Understanding Liquidations

Liquidation is a process that occurs when a Trove's collateral ratio falls below the minimum collateral ratio (MCR) of 110%. The remaining debt of the Trove is repaid by burning HCHF from the Stability Pool's balance, and the entire collateral from the Trove is transferred to the Stability Pool.

Compensation for Liquidating a Trove

When you liquidate a Trove, you are compensated with a liquidation gain. This gain is a share of the liquidated collateral, which is expected to have a greater value than the debt paid off.

Benefits for Stability Providers

Stability Providers benefit from liquidations in two ways. First, they receive a share of the liquidated collateral. Second, they earn HLQT tokens, which can be staked to earn for fees.

What Happens When the Stability Pool is Empty?

If the Stability Pool is empty when liquidations occur, the system activattes a secondary liquidation mechanism known as redistribution. In this process, the debt and collateral from liquidated Troves are redistributed among all other existing Troves in proportion to their collateral amounts.

Oracle Integration

HLiquity uses Supra and Pyth as its oracles to provide reliable price data. Supra serves as the primary oracle, pushing data 24/7 with a deviation threshold of 0.5%, ensuring consistent and accurate price updates. Pyth acts as a fallback oracle, utilizing its HBAR/USD and USD/CHF reference contracts. This dual oracle system enhances the reliability and accuracy of price feeds, ensuring that the protocol operates smoothly even if one oracle fails.

Conclusion

The Stability Pool plays a vital role in the HLiquity protocol, ensuring system solvency and offering benefits to Stability Providers. By understanding how the Stability Pool and liquidation process works, users can make decisions and maximize their benefits from the HLiquity protocol.