Backstop Pool

Stability Pool vs Backstop pool

In the updated V2 version, the previous stability pool is deprecated and will no longer directly handle liquidations. Instead, external actors are tasked with managing the liquidation of collateral from TrenBoxes reducing the risk of unprofitable liquidations due to price volatility for stability providers.

The backstop pool is introduced as a backstop mechanism to cover bad debt in the event that a position cannot be liquidated due to the various risks.

This change is particularly advantageous as it addresses the challenges of scaling the protocol to include a diverse range of long-tail assets, where the value of burned trenUSD might surpass the benefits stability providers receive from the liquidated collateral.

strenUSD

Users deposit trenUSD tokens into the Backstop Pool, which are then locked for a specified period. During this period, stakers cannot withdraw their tokens, but they continue to earn rewards. In return stakers receive strenUSD representing the a yield bearing receipt of depositing into the backstop pool. This token can be freely used in external DeFi protocols adding to the functionality of trenUSD.

Depositing Incentives

The backstop pool enhances user experience by introducing TREN as the uniform reward token, consolidating all yields from liquidations, protocol revenue, and ecosystem incentives into a single stream. This simplification means backstop providers no longer need to manage multiple types of tokens or engage in swapping activities to obtain their preferred tokens.

Risk

In the event of a shortfall, stakers face the risk of losing a portion or all of their staked trenUSD tokens to cover the deficit. A shortfall event occurs when a TrenBox cannot be profitably liquidated due to significant market volatility, oracle risks, or other unforeseen risks. This mechanism allows the protocol to burn trenUSD tokens from the backstop pool to offset the risk and stabilize the system.