Stability Fund

The Stability Fund is the contract given exclusive right to liquidate any Lending Vaults that fall to 120% overcollateralization.

By earning through liquidation revenue, investors in the Stability Fund will earn more during volatile and downward markets without drawdown exposure.

This non-correlated return profile makes the Stability Fund an excellent candidate for a diversified portfolio.

Investing in the Stability Fund

To invest in the Stability Fund, users deposit need to deposit JUSD. This will be the JUSD used to repay Borrower debts and seize collateral.

In exchange for this JUSD, users will wJUSD at the prevailing wJUSD-JUSD exchange rate. This exchange rate will grow over time with liquidation revenues.

When the user eventually wants to trade back their wJUSD for JUSD, this will be at the new higher rate that will reflect the JUSD earnings from liquidations that occurred while the user maintained a deposit in the Stability Fund.

Liquidations

The Stability Fund monitors the position of all the borrowers using SLATE Lending Vaults. In the event that the value of their collateral falls to or below 120% of the outstanding JUSD they owe (principal plus interest), the vault will be liquidated.

During a Liquidation, JUSD is sent from the Stabilty fund to the Lending Vault and burned while simultaneously wiping out that amount of JUSD debt. In exchange, the Stability Fund receives collateral valued at 110% of the JUSD burned.

The amount of JUSD debt repaid is determined by the vault size as well as the availability of JUSD in the Stability Fund. The default is 50%. However, if such a liquidation would result in a remaining outstanding debt position of less than 500 JUSD, the entire JUSD debt will be repaid (Close Factor of 100%) This collateral is then sold back for JUSD which is then returned back to the Stability Fund. Example:

A user deposits 3 wstETH ith a market price of $5,000 into a Lending Vault. The total value of their collateral is $15,000.

They mint 10,000 JUSD against this collateral. Their position is now $15,000 in collateral with 10,000 JUSD of debt, as well as 10,000 JUSD tokens in their wallet. Their overcollateralization ratio is 150%

The value of the wstETH drops to $4,000. The value of the collateral in the lending vault is now only $12,000 while the outstanding debt is still 10,000 JUSD. The positions overcollateralization ratio is now only 120% - the position is now in a liquidatable state.

Given the size of the vault, a 50% close would result in 5000 of the outstanding 10,000 JUSD debt being repaid. As a result 5000 JUSD would go from the Stability Fund to repay the debt of the borrower.

In exchange, the Stability Fund will receive 110% x 5000 JUSD worth of collateral, so 5,500 worth of wstETH, which at the price of $4,000, is 1.375 wstETH.

As a result, the Borrowers position is 3 - 1.375 = 1.625 wstETH worth $6500 and a debt of 5000 JUSD, for an overcolateralization ratio of 130%. The Stability Fund will take its 1.375 wstETH and sell it for 5500 JUSD. (In reality there will be some slippage)

For a 5,000 JUSD liquidation, the Stability Fund receives 5,500 JUSD back due to excess collateral seized. As a result of this liquidation, the wJUSD-JUSD exchange rate is incremented up. It is through this mechanic that the Stability Fund earns its yield.

Notes