# Stability Pool and Liquidation Mechanism

This section will provide an overview of the Stability Pool's role in maintaining the protocol's solvency and liquidity. It will explain how the Stability Pool acts as a safeguard for liquidated positions, ensuring that borrowed OUSD remains backed by collateral. The mechanics of liquidations will be detailed, including how liquidations are triggered and who can initiate them. Additionally, it will outline the benefits for Stability Providers, including potential earnings from liquidation events and early adopter rewards, while addressing associated risks and withdrawal policies.

**What is the Stability Pool?**

The Stability Pool is a critical component of Odysphere, designed to maintain the protocol's solvency. It serves as a source of liquidity to repay debts from liquidated positions, ensuring that the total supply of OUSD remains fully backed by collateral. When a position is liquidated, the corresponding amount of OUSD is drawn from the Stability Pool to cover the outstanding debt. In return, the entire collateral from the liquidated position is transferred to the Stability Pool. The Stability Pool is funded by users who deposit OUSD, referred to as Stability Providers. Over time, these providers may see a decrease in their OUSD balance as they share in the liquidation gains while receiving a proportional share of the liquidated collateral.

#### Why Deposit OUSD into the Stability Pool?

By depositing OUSD into the Stability Pool, users play a crucial role in maintaining the protocol's stability while earning rewards from liquidation events. This mechanism allows participants to contribute to the overall health of the Odysphere ecosystem while potentially benefiting from the protocol's growth and adoption.

<figure><img src="https://2528764854-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FFeR8FM2iECKLVCkZM4fa%2Fuploads%2FsPSRLy7tRg0TEADL9LZE%2Fimage.png?alt=media&#x26;token=f0c06361-3802-4b63-8bce-79cf21933c92" alt=""><figcaption></figcaption></figure>

**What are Liquidations?**

To ensure that all loans remain adequately backed, positions that fall below the minimum collateralization ratio of 135% will be liquidated. When this occurs, the debt associated with the position is canceled and absorbed by the Stability Pool, with collateral distributed among Stability Providers. While borrowers retain their borrowed OUSD, they may incur a loss in value due to liquidation. Borrowers must maintain their collateralization ratio above 135%, ideally above 150%, to avoid liquidation.

#### Who Can Liquidate Positions?

Any user can initiate a liquidation once a position drops below the minimum collateralization ratio.

#### Benefits for Stability Providers

As a Stability Provider, you can benefit from liquidation events. Your share of the Stability Pool is proportional to your deposit size. When liquidations occur, the protocol charges 5% of the liquidated position for operational expenses, while 95% goes as revenue to stability providers. For instance, if you hold 10% of a $1,000,000 pool and a position with $200,000 in debt is liquidated at less than a 135% collateral ratio, you would contribute $10,000 toward covering that debt (since 10% of $100,000 is $10,000) and receive 10% of the 95% of the liquidated collateral— potentially resulting in a net gain.

#### Withdrawal Policy

Users can generally withdraw their deposits from the Stability Pool at any time without restrictions. However, withdrawals may be temporarily paused if there are outstanding positions that need to be liquidated.

#### Risk Considerations

While most liquidations occur above 100% collateralization ratios, there exists a risk that extreme market conditions could lead to liquidations occurring below this threshold. In such cases, providers may experience losses if their share of collateral does not offset their contributions during liquidation. Although contracts have undergone comprehensive audits to ensure security, risks such as smart contract vulnerabilities cannot be entirely eliminated.

#### What Happens if the Stability Pool Is Depleted?

In scenarios where the Stability Pool is empty during liquidations, Odysphere implements an alternative mechanism called redistribution. This process redistributes debt and collateral from liquidated positions proportionally among all existing positions within the protocol.&#x20;

\
\
\
\
