EXPLAINED: What Influences Stability Pool APR? (Yield in $PLS and $LOAN)

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By Connor
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Stability Pool APR

The Stability Pool APR is not constant.

Rather, it fluctuates up and down based upon market conditions.

Learn the factors that influence the Stability Pool yield so you make the best decisions with your USDL dry powder. 

What is the Stability Pool?

The Stability Pool is the first line of defense to ensure system solvency in the Liquid Loans protocol.

The Stability Pool is a smart contract full of USDL which is responsible for paying back vaults with a collateral ratio of less than 110% PLS/USDL value.

In other words, the Stability Pool is the source of funds during automatic liquidations.

Since the value of the liquidated vaults is higher than the repayed debt, Stability Providers earn a profit during liquidations.

For example, if the Stability Pool pays $1000 worth of USDL to liquidate a vault with $1099 worth of PLS, it quickly earns $99 worth of value. 

The Stability Pool also earns rewards in the form of LOAN token emissions. 

What Factors Influence the Stability Pool APR?

There are 4 factors which influence Stability Pool APR:

  1. The Amount of Liquidations. Since Stability Pool is paid for buying low-collateral Vaults at a premium, the more liquidations, the higher the APR.
  1. The Size of Liquidations. Similarly, the more value in the liquidated vaults, the more value in $PLS which will be distributed to the Stability Providers.
  1. How Quickly Vaults are Liquidated. A vault can be liquidated at 109.999% or even under 100%. So, the sooner a user triggers the liquidation mechanism, the better.
  1. Early Adoption. Stability Providers are rewarded with LOAN token emissions. The amount of LOAN token decreases over time, so the earlier Stability Providers will earn more than later ones. 

The Best Time to Provide Stability to Liquid Loans

The best time to provide stability for the Liquid Loans Protocol would be during a bear market and early in the system.

During bear markets, the prices fall which would push the collateral levels of vaults down, possibly increasing the rates of liquidation. 

In addition, holding USDL, a stablecoin, during a bear market would decrease your exposure to downside price volatility. 

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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.

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Connor

Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.

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