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 & $HENEY ) 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. 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.

Peg Stability

When market conditions are favourable, $NECT prices >$1 and collateral prices are stable $NECT have no problems maintaining peg.

But in the case they're not, and the price of collateral assets are falling, the Liquid Stability Pool generates demand for $NECT as folks would need to buy it to deposit into the LSP to profit from the liquidations.

Arbitrage Strategies within the Liquid Stability Pool

The Liquid Stability Pool also presents opportunities for arbitrage, particularly when price discrepancies arise between the assets in the pool and their prices on decentralised exchanges (DEXs). When the price of liquidated collateral in the LSP differs from market prices, arbitrageurs can take advantage by either:

1. Minting $sNECT by depositing $NECT and then redeeming it for a pro-rata share of the underlying collateral, which may be sold at a higher price on a DEX.

2. Buying $sNECT on a DEX and redeeming it for a higher value of underlying collateral than the purchase price.

To further improve this, when redeeming the ratio of collateral assets you redeem can be skewed in favour of a specific asset, making the arbitrage more profitable. These arbitrage activities help to balance the composition of the LSP, ensuring that the pool maintains a healthy mix of assets and generates additional protocol revenue that can be used to incentivise Vaults on BGT station.

Example of Liquidation.

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

If a Den with 200,000 $NECTdebt and 300 $iBGTcollateral faces liquidation when the $iBGTprice is $666, and with 100,000 $NECTdebt and 200 $iBGT collateral is liquidated at a iBGTprice 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 iBGTand 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.