# Liquid Stability Pool (LSP)

The Liquid Stability Pool is a core mechanism within Beraborrow designed to maintain protocol solvency while offering users a way to earn yield from liquidations and protocol fees. By depositing `$NECT` into the pool, users mint `$sNECT`, an ERC4626 token that represents their share of the pool’s assets, including `$NECT`, `$POLLEN`, and any collateral assets.

## **How the Liquid Stability Pool Maintains Protocol Solvency**

The primary function of the Liquid Stability Pool is to handle liquidations within the protocol, which helps maintain a healthy collateral ratio across all user positions. When a user’s position falls below the minimum collateral ratio (MCR), the collateral is liquidated and swapped for `$NECT` in the LSP. This process not only burns the `$NECT` but also transfers the liquidated assets into the LSP, increasing the overall backing of `$sNECT` tokens. Additionally, Pollen incentives and performance fees from PoL-compounding Dens ( `$iBGT`,`$iBERA` & `$HONEY` ) contribute to the yield, allowing users to continuously grow their share of the pool's assets.

The Liquid Stability Pool is a strategic way to maximise your `$NECT` holdings, as you not only earn yield from liquidations but also benefit from performance fees and linear vesting of Pollen emissions. The pool includes built-in rebalancing methods to ensure efficient liquidity management, while minimising slippage. All assets earned from these yield sources are unlocked at a fixed rate to avoid any MEV (Maximum Extractable Value) against depositors.\
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This mechanism ensures that the protocol is always solvent, as liquidated collateral is captured directly by the LSP and used to restore the protocol’s collateralisation levels. As liquidations occur, `$sNECT` holders see an increase in the value of their holdings, since the pool's assets grow without additional `$NECT` being minted.

## **The Role of** `$sNECT` **Tokens and Liquidation Mechanisms**

When you deposit `$NECT` into the LSP, you mint `$sNECT` tokens, which serve as a claim to a proportional share of the pool’s assets. The composition of the pool can vary, with `$sNECT` backed by a mix of `$NECT`, and any liquidated collateral assets such as `$iBERA`, `$iBGT`.

Each time a liquidation occurs, the liquidated collateral is added to the pool, increasing the backing of `$sNECT` tokens. When users withdraw or redeem `$sNECT`, they receive a mix of the pool’s assets according to their share. For example, if the pool consists of 70%`$NECT`, 10%`$POLLEN`, and 20%`$iBGT`, a user redeeming 100`$sNECT` would receive 70`$NECT`, 10`$NECT` worth of `$POLLEN`, and 20`$NECT` worth of `$iBGT`.<br>

### Example of a Liquidation&#x20;

Assume a total of `2,000,000 $NECT`exists in the Liquid Stability Pool, and you've deposited `200,000 $NECT`.

If a Den with `200,000 $NECT`debt and `300 $iBGT`collateral faces liquidation when the `$iBGT`price is `$666`, and  with `100,000 $NECT`debt and `200 $iBGT` collateral is liquidated at a `$iBGT`price of `$666`, you'll be impacted based on your 10% pool share.

Specifically, your deposit will decrease by `10%` of the liquidated debt, amounting to `30,000 $NECT`. This means your deposit will diminish from `200,000 to 170,000 NECT`. In compensation, you'll acquire 10% of the liquidated collateral: `30 $iBGT`and `20 $iBGT`. At the given price, this collateral is valued at `$33,300`, rendering you a net profit of `$3,300` from the liquidation event.

See more liquidations information on, [Collateral Ratio and Liquidation.](https://beraborrow.gitbook.io/docs/borrowing/collateral-ratio-and-liquidation)


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