xPool(Stability Pool) and Liquidations
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 Troves—ensuring that the total XIM supply always remains backed.
When any Trove is liquidated, an amount of XIM corresponding to the remaining debt of the Trove is burned from the Stability Pool’s balance to repay its debt. In exchange, the entire collateral from the Trove is transferred to the Stability Pool.
The Stability Pool is funded by users transferring XIM into it (called Stability Providers). Over time Stability Providers lose a pro-rata share of their XIM deposits, while gaining a pro-rata share of the liquidated collateral. However, because Troves 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 SPACE tokens.
To ensure that the entire stablecoin supply remains fully backed by collateral, Troves that fall under the minimum collateral ratio of
110%will be closed/liquidated.
The debt of the Trove is canceled and absorbed by the Stability Pool and its collateral distributed among Stability Providers.
The owner of the Trove still keeps the full amount of XIM borrowed but loses
~10%value overall hence it is critical to always keep the ratio above
110%, ideally above
xDollar is currently using Chainlink price oracle as the main pricing oracle.
Anybody can liquidate a Trove as soon as it drops below the Minimum Collateral Ratio of
110%. The initiator receives a gas compensation (Liquidation Reserve +
0.5%of the Trove's collateral) as reward for this service.
The liquidation of Troves is connected with certain gas costs which the initiator has to cover. The cost per Trove was reduced by implementing batch liquidations of up to 95 Troves 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 = liquidation reserve + 0.5% of Trove's collateral
400XIM is funded by Liquidation Reserve while the variable
0.5%part (in $ETH) 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 Trove is liquidated.
First you need to open a Trove, borrow XIM, and deposit it to the Stability Pool. After making your deposit, you will start accumulating a reward (in SPACE) proportional to the size of your deposit on a continuous basis. The reward is calculated according to the rewards schedule and the kickback rate of the front end that you used for making the deposit. Rewards will be the highest for early adopters of the system.
At any point in time, you can withdraw your pending rewards to your wallet 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 Troves 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 Trove 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 XIM is trading above
$1, liquidations may become unprofitable for Stability Providers even at collateral ratios higher than
100%. However, this loss is hypothetical since XIM is expected to return to the peg, so the “loss” only materializes if you had withdrawn your deposit and sold the XIM at a price above
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 Troves to all other existing Troves. The redistribution of debt and collateral is done in proportion to the recipient Trove's collateral amount.
Last modified 1yr ago