Stability Pool & Liquidations
Last updated
Last updated
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 PiggyBanks—ensuring that the total $PUSD supply always remains backed.
When any PiggyBank is liquidated, an amount of $PUSD corresponding to the remaining debt of the PiggyBank is burned from the Stability Pool’s balance to repay its debt. In exchange, the entire collateral from the PiggyBank is transferred to the Stability Pool.
The Stability Pool is funded by users transferring $PUSD into it (called Stability Providers). Over time Stability Providers lose a pro-rata share of their $PUSD deposits, while gaining a pro-rata share of the liquidated collateral. However, because PiggyBanks 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.
Stability Providers will make liquidation gains (see below) and receive early adopter rewards in form of $PIGGY tokens.
Step1: Click the "Stability Pool" on the sidebar menu. You will find your current stability pool overview which includes your position and your rewards to be claimed.
Step2: Click Stake/Unstake as you want. Then fill the amount you want to Stake/Unstake.
Step3: Confirm all the information and your position will change.
From the Stability Pool you can get 2 types of rewards, one is the liquidation reward which is the $BNB, the other one is $PIGGY reward for your early contribution.
For the liquidation reward, you can open the "Stability Pool" page and find your current liquidation reward to be claimed. Click "Claim" button, the reward will be deposit to your wallet. On the other hand, for your convenience we provide you a function which you can directly transfer the reward to your PiggyBank to act as collateral. For Piggy Token reward, you can open the "Stability Pool" page and find your current $PIGGY reward to be claimed. Click "Claim" button, the reward will be deposit to your wallet.
What are liquidations?
To ensure that the entire stablecoin supply remains fully backed by collateral, PiggyBanks that fall under the minimum collateral ratio of 110% will be closed (liquidated).
The debt of the PiggyBank is canceled and absorbed by the Stability Pool and its collateral distributed among Stability Providers.
The owner of the PiggyBank still keeps the full amount of $PUSD borrowed but loses ~ 10% value overall hence it is critical to always keep the ratio above 110%, ideally above 150%.
Anybody can liquidate a PiggyBanks soon as it drops below the Minimum Collateral Ratio of 110%. The initiator receives a gas compensation (20 $PUSD + 0.5% of the PiggyBank's collateral) as reward for this service.
The liquidation of PiggyBanks is connected with certain gas costs which the initiator has to cover. The cost per PiggyBank was reduced by implementing batch liquidations of up to 95 PiggyBanks but with the aim of ensuring that liquidations remain profitable even in times of soaring gas prices the protocol offers a gas compensation given by the following formula: Gas compensation = 20 PUSD + 0.5% of PiggyBank's collateral ($BNB). The 20 $PUSD is funded by a Liquidation Reserve while the variable 0.5% part (in $BNB) comes from the liquidated collateral, slightly reducing the liquidation gain for Stability Providers.
As liquidations happen just below a collateral ratio of 110%, you will most likely experience a net gain whenever a PiggyBank is liquidated.
Let’s say there is a total of 1,000,000 $PUSD in the Stability Pool and your deposit is
100,000 $PUSD. Now, a PiggyBank with debt of 200,000 $PUSD and collateral of
400 $BNB is liquidated at an $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 $PUSD), i.e. from 100,000 to 80,000 $PUSD. 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 $BNB, if the USD value of $BNB is expected to decrease.
First you need to open a PiggyBank, borrow $PUSD, and deposit it to the Stability Pool. After making your deposit, you will start accumulating a reward (in $PIGGY) proportional to the size of your deposit on a continuous basis. The reward is calculated according to the rewards schedule. Rewards will be the highest for early adopters of the system.
At any point in time, you can withdraw your pending rewards to your BSC address.
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 PiggyBank with a collateral ratio below 110% that have not been liquidated yet.
While liquidations will occur at a collateral ratio well above 100% most of the time, it is theoretically possible that a PiggyBank 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 $PUSD is trading above $1, liquidations may become unprofitable for Stability Providers even at collateral ratios higher than 100%. However, this loss is hypothetical since $PUSD is expected to return to the peg, so the “loss” only materializes if you had withdrawn your deposit and sold the $PUSD at a price above $1.
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.
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 PiggyBanks to all other existing PiggyBanks. The redistribution of debt and collateral is done in proportion to the recipient PiggyBank's collateral amount.
