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Stability Pools Process Flow

This document describes how stability pools work, including deposits, withdrawals, rewards, and rebalancing.

Overview​

Stability pools provide a mechanism for users to earn yield while providing liquidity for protocol rebalancing. Depositors receive rewards and rebalance tokens (collateral or leveraged tokens) in exchange for their deposits.

Deposit Process​

Step-by-Step Flow​

  1. User Initiates Deposit

    • User calls deposit(amount) on Stability Pool contract
    • Provides asset tokens (pegged tokens, e.g., haETH)

  2. Token Transfer

    • Asset tokens are transferred from user to stability pool
    • Pool balance increases

  3. Stake Token Minting

    • LP tokens (stake tokens) are minted to user
    • Amount minted = (deposit amount × total stake tokens) / total assets
    • Represents user's share of the pool

  4. Gauge Staking

    • Stake tokens are automatically staked in the liquidity gauge
    • User becomes eligible for rewards

  5. Event Emission

    • Deposited event emitted with user address and amount

Example​

Pool State:
- Total Assets: 1000 haETH
- Total Stake Tokens: 1000

User deposits 100 haETH:
- New Total Assets: 1100 haETH
- Stake Tokens Minted: (100 × 1000) / 1000 = 100
- User receives 100 stake tokens

Withdrawal Process​

Step-by-Step Flow​

  1. User Initiates Withdrawal

    • User calls withdraw(amount) on Stability Pool
    • Specifies amount of stake tokens to burn

  2. Stake Token Validation

    • Contract verifies user has sufficient stake tokens
    • Checks if withdrawal is allowed (no active liquidations, etc.)

  3. Asset Calculation

    • Assets to return = (stake tokens × total assets) / total stake tokens
    • Accounts for any accrued value from liquidations

  4. Token Transfer

    • Asset tokens transferred from pool to user
    • Stake tokens burned

  5. Gauge Unstaking

    • Stake tokens unstaked from gauge
    • Rewards remain claimable

  6. Event Emission

    • Withdrawn event emitted

Example​

Pool State:
- Total Assets: 1100 haETH (includes liquidation gains)
- Total Stake Tokens: 1100

User withdraws 100 stake tokens:
- Assets Returned: (100 × 1100) / 1100 = 100 haETH
- But pool may have gained value from liquidations
- User receives proportional share of gains

Reward Mechanism​

Compounding Accumulator System​

Stability pools use a compounding accumulator system for reward distribution:

  1. Reward Tokens: Multiple tokens supported (e.g., TIDE, wstETH from harvests)
  2. Distribution: Based on user's share of total pool balance
  3. Compounding: Rewards compound automatically into user balances

Reward Calculation​

Rewards are calculated using an integral-based system:

  • Global reward integrals track accumulated rewards per token
  • User checkpoints track their position in the reward accumulation
  • Rewards = (userShare × (currentIntegral - userCheckpointIntegral)) / precision

Claiming Rewards​

  1. User Calls claim()

    • Checkpoints user to update reward calculations
    • Calculates accrued rewards for all active reward tokens
    • Transfers reward tokens to user (or custom receiver)

  2. Reward Updates

    • User's reward snapshot updated
    • Pending rewards reset to zero
    • Claimed amount incremented
    • Event emitted

For detailed information about the reward system, see Reward System Contracts.

Rebalance Participation​

How Depositors Benefit​

When rebalancing occurs:

  1. Rebalance Tokens Received

    • Depositors receive rebalance tokens (collateral or leveraged tokens)
    • Proportional to their stake in the pool

  2. Value Accrual

    • Pool's total asset value may increase
    • Stake token holders benefit from rebalance gains
    • Value per stake token increases

  3. Diversification

    • Depositors gain exposure to rebalance tokens
    • Can hold or sell rebalance tokens

Rebalance Flow Integration​

Rebalancing occurs:
↓
Pegged tokens burned from pools
↓
Rebalance tokens distributed to pools
↓
Pool's rebalance token balance increases
↓
Value per stake token increases
↓
Depositors benefit when withdrawing

Pool Types Comparison​

Collateral Stability Pool​

Characteristics:

  • Liquidation Token: wstETH (collateral)
  • Risk Profile: Lower risk, stable collateral
  • Use Case: Conservative yield earning

Rewards:

  • TIDE token rewards
  • wstETH from rebalancing
  • Staking yield from underlying collateral

Sail Stability Pool​

Characteristics:

  • Liquidation Token: Leveraged tokens (hsETHxFxSAVE)
  • Risk Profile: Higher risk, leveraged exposure
  • Use Case: Aggressive yield + exposure

Rewards:

  • TIDE token rewards
  • Leveraged tokens from rebalancing
  • Potential for leveraged gains

Pool State Management​

Key Metrics​

  • Total Assets: Total asset tokens in pool
  • Total Stake Tokens: Total LP tokens minted
  • Rebalance Token Balance: Accumulated rebalance tokens
  • Reward Accumulation: Accrued rewards from multiple tokens

State Updates​

  • Deposits increase both assets and stake tokens
  • Withdrawals decrease both proportionally
  • Rebalancing increases rebalance token balance
  • Rewards accrue continuously via gauge

Risk Considerations​

For Depositors​

  • Impermanent Loss: Value changes from rebalancing
  • Rebalance Token Risk: Value of received tokens may fluctuate
  • Smart Contract Risk: Protocol and contract risks
  • Reward Volatility: Reward token price fluctuations

Mitigations​

  • Diversification across pool types
  • Monitoring pool health metrics
  • Understanding rebalancing mechanics

Best Practices​

  1. Diversify: Consider both pool types
  2. Monitor: Track pool metrics and health
  3. Timing: Consider market conditions for deposits/withdrawals
  4. Understand: Know what rebalance tokens you'll receive