Reserve Pool & Bond Sale
Reserve Pool acts as Probity's balance sheet and is a very important part of normal operation. This balance can also be an indicator for the system's overall health in maintaining the solvency.
System Debt represent the amount of stablecoin tokens that aren't fully-backed 1:1. This balance can accumulate following liquidation of debt positions. Typically, the system reserve can be increased in two ways:
- Proceeds from collateral auctions.
- Protocol fees.
When a liquidation event occurs, Reserve Pool inherits the debt from the liquidated position while the asset is being auctioned. This balance is considered
debtOnAuction , representing how much system debt is considered temporary, as the sale of collateral to cover these debts is still ongoing.Settlement allows Reserve Pool to cancel out system debt by using the system reserve balance.
In the case that the system debt reaches a designated threshold, Reserve Pool can trigger a bond sale. This debt issuance is designed to bring Probity back into solvency. Purchased bond tokens are redeemable for stablecoin tokens on a 1:1 basis when the Reserve Pool system reserve balance becomes positive again.
Buyers who believe in the ability of Probity to recover are rewarded with more bond tokens per stablecoin until a maximum ratio is reached.
In the event of a shutdown, stablecoin holders are considered a senior debt tranche, and will be paid first before bond token holders.
Last modified 4mo ago