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description: Participation in the Stability Pool
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# Stability Pool

Users can participate in the stability pool by depositing the Basefee derivative token. These tokens are pooled together and serve as a reserve to absorb losses from liquidation events and ensure the overall stability of the protocol.

1. **Depositing**: Users deposit their stable tokens into the stability pool. These users are often incentivized to do so through mechanisms like interest earnings, rewards in $HOG tokens, or fee-sharing from the protocol's operations.
2. **Risk Mitigation**: The stability pool acts as a first line of defense against volatile market conditions. It is designed to protect the protocol against scenarios like sharp declines in collateral value, which could otherwise render the system insolvent.

#### Handling Liquidations

When a borrower's collateral falls below the required collateralization ratio, it triggers a liquidation event. The stability pool comes into play here to ensure that the system remains solvent.

1. **Liquidation of Collateral**: In a liquidation event, the protocol sells off the under-collateralized positions to the highest bidder or through an automated mechanism designed to fetch the best possible price at that time. However, instead of an immediate market sale, the debt (or a portion of it) is offset with the assets in the stability pool.
2. **Debt Absorption**: The stability pool absorbs the debt by being "paid" in the form of liquidated collateral (e.g., wstETH). Consequently, the size of the stability pool decreases, but in return, it now holds a different asset (collateral seized from the liquidated position).

#### Incentives and Rewards

To incentivize users to deposit their tokens into the stability pool, protocols often offer lucrative rewards.

1. **Interest and Rewards**: Participants might earn interest on their deposited tokens, accumulate rewards in the form of the protocol's governance token, or receive a share of fees generated by the protocol’s operations.
2. **Liquidation Incentives**: In certain scenarios, participants might also be entitled to a portion of the collateral from liquidated positions, often distributed proportionally based on each participant's stake in the stability pool.

#### Stability Pool Health and Risk Management

Continuous monitoring and proper risk management practices are critical for maintaining the health of the stability pool and, by extension, the entire protocol.

1. **Health Metrics**: The protocol needs to continuously monitor the pool's size relative to the outstanding debt in the system. If the pool gets too small, it might not be able to effectively handle a large-scale liquidation event.
2. **Recapitalization**: In the event of significant market downturns, the stability pool might become depleted. Protocols must have strategies in place for recapitalization, which could involve automatic interest rate adjustments to encourage more deposits, direct incentives, or even emergency measures through governance decisions.

#### User Withdrawals

Participants in the stability pool can withdraw their contributions.

1. **Withdrawal Requests**: Users can request to withdraw their funds from the stability pool.&#x20;
2. **Impact Assessment**: Large withdrawals could impact the health of the stability pool. The protocol might implement measures to manage sudden or large-scale withdrawals, such as dynamic fees.

