Balancer Pool and Liquidations

What Is The Balancer Pool?

The Balancer Pool serves as the first line of defense in maintaining system solvency by providing liquidity to repay debt from liquidated vaults, ensuring that the total $AXUSD supply remains fully backed. When a vault is liquidated, an amount of $AXUSD equivalent to the remaining debt of the vault is burned from the balancer Pool’s balance to settle the debt. In return, the entire collateral from the liquidated vaults is transferred to the Balancer Pool.

The Balancer Pool is funded by users who transfer $AXUSD into it, known as Balance Providers. Over time, Balance Providers lose a proportional share of their $AXUSD deposits but gain a proportional share of the liquidated collateral. Since vaults are typically liquidated at just below 110% collateral ratios, Balance Providers are expected to receive a greater dollar value in collateral compared to the debt they cover.

How do i benefit as a Balancer from liquidations?

Suppose the Balancer Pool has a total of 1,000,000 $AXUSD and your deposit is 100,000 $AXUSD. If a vault with a debt of 100,000 $AXUSD and collateral of 200 ETH is liquidated at an ETH price of $545.45, resulting in a collateral ratio of 109%, your 10% pool share means your deposit will decrease by 10% of the liquidated debt (10,000 $AXUSD), reducing your deposit from 100,000 to 90,000 $AXUSD. In return, you will receive 10% of the liquidated collateral, which is 20 ETH. Your net gain from the liquidation is $909 (20 ETH * $545.45 - 10,000 $AXUSD).

Can i withdraw my deposit whenever i want?

Generally, you can withdraw your deposit from the Balancer Pool at any time, as there is no minimum lockup period. However, withdrawals are temporarily suspended if there are liquidatable vaults with a collateral ratio below 110% that haven't been liquidated yet.

What happens if the pool is empty when liquidation occur?

If the Balancer Pool is empty, the system activates a secondary liquidation mechanism called redistribution. In this scenario, the debt and collateral from liquidated vaults are redistributed to all other existing vaults. The redistribution is proportional to the collateral amount in each recipient vault.