Pool Stabilization & Rebalancing

       

The Stability Pool in Chiss Protocol is a critical component that ensures the protocol remains solvent and maintains overall stability across multiple lending and collateral pools. It serves as a reserve of funds provided by users, which is used to absorb undercollateralized debt positions in the event of a liquidation. When a borrower’s collateral value falls below the required threshold, the Stability Pool steps in to repay the debt and liquidate the collateral, ensuring the protocol remains solvent and that the value of borrowed assets is preserved, even in cases of extreme market volatility.

• Definition and Function: The Stability Pool is a reserve of funds that users contribute to in order to maintain the solvency of the protocol. These funds are used to cover undercollateralized positions in the event of a liquidation. The Stability Pool plays a critical role in ensuring that multiple lending pools remain balanced and solvent, especially given the cross-pool lending mechanism employed by Chiss Protocol.

• Contributors and Rewards: Users who contribute to the Stability Pool, known as Stability Providers, are incentivized to do so by earning rewards in return. These rewards can come in the form of liquidation gains (e.g., a portion of the liquidated collateral) or yield paid in stablecoins like USDT. By participating in the Stability Pool, users can earn passive income while supporting the protocol's overall stability. Stability Providers are crucial to maintaining the health of the protocol, as their contributions ensure the availability of funds to handle liquidations effectively.

• Cross-Pool Liquidation Process: In the event that a loan position in one of the pools becomes undercollateralized, the Stability Pool is used to cover the shortfall. The liquidated collateral is distributed among the Stability Providers based on their proportional share of the pool. This process helps ensure that the protocol remains solvent and that other borrowers are not adversely affected by individual loan defaults. The cross-pool nature of Chiss Protocol means that the Stability Pool must be capable of handling liquidations across multiple collateral types and pools, ensuring liquidity and stability for the entire ecosystem.

• Benefits for the Protocol: The Stability Pool is instrumental in reducing the risk of cascading liquidations, which can occur when multiple positions become undercollateralized in a short period. By maintaining a reserve of funds that can be used to quickly address undercollateralized positions, the Stability Pool helps stabilize the protocol during periods of high market volatility. Additionally, it provides a predictable and transparent mechanism for managing risk, which is essential for maintaining user confidence. The cross-pool mechanism ensures that stability is maintained across different assets and lending pools, creating a more resilient system.

The Stability Pool in Chiss Protocol is designed to provide a robust safety net that ensures the protocol remains stable and solvent, even in challenging market conditions. By tailoring the Stability Pool to meet the unique needs of a multi-pool, cross-asset ecosystem, Chiss Protocol offers an effective solution for managing risk and maintaining stability within the DeFi landscape