Stability Pool and Liquidations

The Stability Pool is a central mechanism in Virtue that allows users to contribute VUSD to help absorb under-collateralized debt, in exchange for a share of the liquidated collateral.

What makes Virtue unique is its single shared pool design: by depositing VUSD into one pool, you’re automatically participating in liquidations across all supported collateral types — no need to manage separate pools for each asset.

How it works

When a borrower’s position drops below the required Minimum Collateral Ratio (MCR), the system considers it under-collateralized and makes it eligible for liquidation.

In Virtue, this process happens in four clear steps:

1. Collateral Ratio Drops Too Low When a position’s Individual Collateral Ratio (ICR) falls below the Minimum Collateral Ratio (MCR) — typically due to a drop in the collateral’s price — the position becomes under-collateralized.

2. Liquidation Is Triggered by Whitelisted Executors Only addresses approved on the liquidation whitelist can call the liquidation function to initiate the process. This ensures liquidations are handled efficiently and securely.

3. Debt Is Repaid Using VUSD VUSD from the Stability Pool is used to fully or partially repay the borrower’s outstanding debt, depending on pool availability.

4. Collateral Is Claimed The protocol seizes collateral from the liquidated position and distributes it as follows: • 0.7% protocol fee • 99.3% distributed to Stability Pool depositors based on their share (Note: whitelisted liquidators do not receive additional rewards.)

📘 Example

Imagine a user locks $200 worth of stIOTA as collateral and mints 100 VUSD. Later, if the price of stIOTA drops and the user’s collateral ratio falls to 110% (meaning the total collateral value becomes $110) or lower, the position becomes eligible for liquidation.

Here’s what happens:

• The system uses 100 VUSD from the Stability Pool to repay the user’s debt

• The protocol seizes approximately $110 worth of stIOTA

• From that, 0.7% is charged as a protocol fee

• The remaining 99.3% of the stIOTA is distributed proportionally to all Stability Pool depositors based on their share

Now, from a Stability Pool depositor’s perspective:

Assume the Stability Pool’s total deposits amount to 1,000 VUSD, and Bob has contributed 100 VUSD — giving him a 10% share.

This means Bob contributes 10 VUSD to cover this liquidation. In return, he receives 10% of the seized collateral after deducting the total 0.7% liquidation fees.

As a result, Bob ends up with 90 VUSD remaining in the pool and $10.923 worth of stIOTA ($110 × 99.3% × 10%).

Consideration for Stability Pool Depositors

While the Stability Pool offers opportunities to earn collateral from liquidations, it’s important to note one key risk:

Asset Volatility

The collateral you receive (e.g., stIOTA) may fluctuate in value after liquidation. Even if you acquire it at a discount, rapid price drops can result in losses relative to the VUSD you initially deposited.

Stability Pool returns depend on market conditions — the more stable the collateral, the more predictable the rewards.

Why it Matters

The Stability Pool is not only a yield opportunity — it’s a key part of how Virtue defends the VUSD peg and preserves solvency. Contributors are rewarded for stepping in when the system needs liquidity most, and the shared-pool structure makes it simple to participate.