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.
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.
There are 4 factors which influence Stability Pool APR:
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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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.