Stability Pool & Liquidations
Last updated
Last updated
The Stability Pool is the primary liquidation mechanism of Stark-Fi. It ensures the system remains solvent by absorbing liquidated debt from undercollateralized Trove positions.
When a Trove's LTV goes higher than the , it gets liquidated. The debt from the liquidated Trove is repaid using USFI from the Stability Pool, and in exchange, the collateral (ETH, rETH, wstETH, BTC, STRK) is distributed to depositors.
By participating in the Stability Pool, users help maintain system stability while earning liquidated collateral at a discount.
Depositing USFI into the Stability Pool offers multiple benefits:
Earn Liquidated Collateral – When a Trove is liquidated, Stability Providers receive its collateral at a discount, creating an opportunity for profit.
Passive Earnings on Deposits – Unlike traditional lending where rewards depend on demand, the Stability Pool ensures continuous earnings from liquidation events.
Contribute to System Stability – By depositing USFI, you help maintain the protocol's solvency, ensuring USFI remains secure and efficient.
Potential Bonus Rewards – The protocol may introduce incentives (SFI rewards) for Stability Providers, further boosting yield opportunities.
Yes, users can withdraw their USFI from the Stability Pool at any time, unless a liquidation is in progress.
⚠️ However, over time, your USFI balance may decrease due to liquidations, as your USFI is used to repay liquidated debt in exchange for discounted collateral (ETH, wstETH, rETH, STRK, BTC).
If the Stability Pool doesn’t cover the full entire debt and gets completely emptied by the liquidation, the system falls back to the following liquidations modes.
The liquidator can freely choose between two fallback liquidation modes for the debt exceeding the funds in the Stability Pool:
Just-in-time (JIT) liquidation: the liquidator sends an amount of USFI corresponding to the (remaining) debt in exchange for 105% of its nominal value in (staked) ETH.
Redistribution: the liquidator triggers a redistribution, through which the Trove’s entire debt and collateral is redistributed to all fellow borrowers of the respective collateral market, in proportion to their own collateral amounts. Thus, the respective borrowers will receive a share of the liquidated collateral and see their debts increase proportionally.
Stark-Fi will have five separate borrow markets for the different collateral types with their own Stability Pools (for efficient liquidations), user-set interest rates, and LTV factors for their respective assets (ETH, wstETH, rETH, STRK, BTC).
Risks are mitigated through temporary borrowing restrictions in times of low collateralization of a given market, a redemption logic prioritizing collateral with less Stability Pool backing, and a collateral shutdown as an emergency measure to maintain system balance and protect against market instability.
Keep in mind that despite all these measures, USFI remains dependent on the mentioned collateral assets and there is no strict guarantee that it remains overcollateralized in case of a sudden collapse of a collateral asset.
💡 Example (Max LTV Ratio of ETH is 90.91%) :
A user deposits 10 ETH when ETH = $3,000, securing a loan of 25,000 USFI (LTV Ratio = 83.33%).
If ETH’s price drops to $2,750, the new collateral value is $27,500, making the new LTV ratio approximately 90.91% (calculated as: $25,000 loan / $27,500 collateral value).
Since the LTV ratio reaches the maximum allowed limit (90.91%), the user’s loan position is at risk of liquidation.
The Trove is liquidated, and its debt is absorbed by the Stability Pool in exchange for the 10 ETH collateral (distributed to Stability Providers).
Stark-Fi uses Stability Pools as its primary liquidation mechanism to absorb liquidated debt and collateral. Each borrow-market has its own dedicated Stability Pool earning liquidation gains (in the respective collateral) in exchange for burning debt.
Just-In-Time liquidations and a redistribution of debt and collateral across borrowers of the same market handle liquidations as a last resort when the Stability Pool is empty.
A liquidated borrower usually incurs a penalty of 5% and will be able to claim the remaining collateral after liquidation.
A special case is when a Redistribution is necessary, then:
For ETH, the loss amounts to 10% of the debt (at most). That corresponds to a max. loss of 9.09% expressed in terms of collateral.
For rETH/wstETH the loss is 20% of the debt, corresponding to a max. loss of 16.67% expressed in terms of collateral.
Liquidators use Stark-Fi’s smart contract functions to execute liquidations and claim a small gas fee reward for performing the action.
Since liquidations are permissionless and decentralized, they create a self-sustaining mechanism, ensuring Trove owners manage their positions carefully.
The liquidation of Troves is connected with certain gas costs which the initiator has to cover. The protocol offers a gas compensation given by the following formula :
1 USFI + min(0.5% trove_collateral, 2_units_of_LST_or_WETH)
Stark-Fi uses a decentralized, tamper-resistant oracle solution to fetch real-time price data for ETH, BTC, and STRK.
Chainlink Oracles (or an equivalent decentralized provider) fetches secure and reliable price feeds to prevent manipulation.
Price updates ensure accurate collateral valuation and trigger fair liquidations.
The system is designed to prevent oracle attacks, ensuring the protocol remains secure and decentralized.
This mechanism ensures USFI remains stable, overcollateralized, and secure, making Stark-Fi a reliable and efficient DeFi lending platform.
Liquidations occur when a Trove’s goes higher than the maximum allowed.
Liquidations ensure all USFI remains backed by sufficient collateral, preventing bad debt accumulation. Also Stark-Fi ensures solutions and others mechanisms in case of the stability .
Troves get liquidated if the LTV goes above (90.91% for ETH and 83.33% for wstETH and rETH, etc...).
Anyone can trigger a liquidation if a Trove's reaches the max allowed.
The 1 USFI is funded by a while the variable 0.5% part comes from the liquidated collateral, slightly reducing the liquidation gain for Stability Providers.
