Stability Pool

What is the Stability Pool?

The Stability Pool is the first line of defense in maintaining system solvency. It provides liquidity to repay debt from liquidated TrenBoxes, ensuring that the total trenUSD supply remains fully backed. This liquidation process bypasses the need for external Automated Market Makers (AMMs) or slower auction models, ensuring rapid and efficient resolution of bad debts.

When a TrenBox is liquidated, an amount of trenUSD equal to the remaining debt is burned from the Stability Pool's balance to repay the debt. In return, the entire collateral from the TrenBox is transferred to the Stability Pool.

The Stability Pool is funded by users who deposit trenUSD into it (known as Stability Providers). Over time, Stability Providers lose a proportional share of their trenUSD deposits while gaining a proportional share of the liquidated collateral.

For example, in the case of WETH TrenBoxes, which are typically liquidated just above 90% LTV, Stability Providers are likely to receive a greater dollar value of collateral relative to the debt they pay off.

Why should I deposit trenUSD into the Stability Pool?

Stability Providers earn profits from liquidating collateral discounted to the market value

Liquidation profits are inversely related to the LTV of the collateral type being liquidated. For instance, when a WETH TrenBox is liquidated, users can acquire WETH at approximately a 10% discount.

Similarly, for LST TrenBoxes, which allow users to borrow trenUSD at up to 85% LT, Stability Providers can obtain LST at roughly a 15% discount upon liquidation.

As liquidations occur just above a predefined LT, you will most likely experience a net gain whenever a TrenBox is liquidated.

For example, suppose there is a total of 1,000,000 trenUSD in the Stability Pool and your deposit is 100,000 trenUSD, representing 10% of the pool.

If a TrenBox with a debt of 200,000 trenUSD and collateral of 400 WETH is liquidated at an Ether price of $545 (resulting in an LTV of 91%), your deposit will decrease by 10% of the liquidated debt (20,000 trenUSD), from 100,000 to 80,000 trenUSD. In return, you will gain 10% of the liquidated collateral, which is 40 WETH worth $21,800. Your net gain from the liquidation would be $1,800.

Withdrawal Pause

Generally, you can withdraw your deposit from the Stability Pool at any time, with no minimum lockup duration. However, withdrawals are temporarily suspended when there are liquidatable TrenBoxes with an LTV above the protocol-set amount that have not yet been liquidated.

Risk

While liquidations usually occur at an LTV well below 100%, it is theoretically possible for a TrenBox to be liquidated above 100% in a flash crash or due to an oracle failure. In such cases, the collateral gain might be smaller than the reduction of your deposit, resulting in a loss.

Additionally there is a risk that the value of the collateral is lower than the amount of trenUSD used to liquidate the position due to further price decline

If trenUSD is trading above $1, liquidations may become unprofitable for Stability Providers even at an LTV below 100%. However, this loss is hypothetical since trenUSD is expected to return to its peg, meaning the “loss” only materializes if you withdraw your deposit and sell trenUSD above $1.