⚖️Stability Pool & Liquidations

Stability Pool and Liquidations on Moonyield

The Stability Pool plays a crucial role in maintaining the health of the MoonYield protocol by absorbing debt from liquidated Vaults. This ensures the stability of MUSD and protects the system from under-collateralized loans. In MoonYield, collateral is denominated in MSS.

Stability Pool Overview:

The Stability Pool is a collective pool where users deposit MUSD to help secure the system. When a Vault is liquidated, the Stability Pool absorbs its debt and receives the liquidated MSS collateral in return. Depositor Role: Stability Pool depositors support the protocol by providing MUSD to cover liquidated Vaults. Rewards: In exchange, depositors earn MSS (from liquidations) and Moonshare Tokens as incentives.

Liquidations:

A Vault is liquidated if its collateral-to-debt ratio falls below the minimum collateral ratio (130%). Liquidations ensure that the protocol remains solvent and that MUSD remains fully backed. How Liquidations Work: The liquidated debt is canceled by the Stability Pool using deposited MUSD. The Vault’s MSS collateral is distributed to Stability Pool depositors proportional to their MUSD contribution.

Example: Suppose a Vault has: Debt: 1,000 MUSD Collateral: 1,300 MSS If the collateral ratio falls below 130%, the Vault is liquidated. The Stability Pool absorbs 1,000 MUSD of debt. Depositors in the Stability Pool receive 1,300 MSS as collateral.

Stability Pool Rewards:

Stability Pool participants earn rewards for their role in stabilizing the protocol: MSS Gains: Depositors receive MSS from liquidated Vaults. Moonshare Rewards: Additional Moonshare tokens are distributed as an incentive for participating in the Stability Pool.

Benefit of Participating in the Stability Pool:

Earn Collateral: Depositors receive MSS at a potentially discounted rate during liquidations. Moonshare Rewards: Passive income through governance token rewards. Support Protocol Stability: Depositors contribute to the health and stability of the MoonYield system

Managing Risk: Partial Liquidations: Vaults are liquidated only to the extent necessary to restore solvency, ensuring minimal disruption. Adjusting Positions: Stability Pool participants should monitor their deposits and adjust based on market conditions and personal risk tolerance.