Backstop Staking (USDx Staking)
A short description of the functionality and yield opportunities of the 'USDx Staking' Tab
Last updated
A short description of the functionality and yield opportunities of the 'USDx Staking' Tab
Last updated
The Backstop Pool is the first line of defence in maintaining system solvency. It achieves that by acting as the source of liquidity to repay debt from liquidated Positions, ensuring that the total USDx supply always remains backed. When any Position is liquidated, an amount of USDx corresponding to the remaining debt of the Position is burned from the Backstop Pool’s balance (in the form of USDx) to repay its debt. In exchange, the entire collateral from the Position is transferred to the Backstop Pool.
The Backstop Pool is funded by users transferring USDx into it (called Backstop Providers). Over time Backstop Providers lose a pro-rata share of their USDx deposits, while gaining a pro-rata share of the liquidated collateral. However, because Positions are likely to be liquidated at just below their MCR, it is expected that Backstop Providers will receive a greater dollar-value of collateral relative to the debt they pay off.
Note: Depositors can immediately withdraw the collateral received from liquidations and sell it to reduce their exposure to the collateral, if the USD value of the collateral is expected to decrease.
As a general rule, you can withdraw the deposit made to the Backstop Pool at any time. There is no minimum lockup duration. However, withdrawals are temporarily suspended whenever there are liquidatable Positions with a collateral ratio below their configured MCR% that have not been liquidated yet.
While liquidations will occur at a collateral ratio well above 100% most of the time, it is theoretically possible that a Position gets liquidated below 100% in a flash crash or due to an oracle failure. In such a case, you may experience a loss since the collateral gain will be smaller than the reduction of your deposit.
If USDx is trading above $1, liquidations may become unprofitable for Backstop Providers even at collateral ratios higher than 100%. However, this loss is hypothetical since USDx is expected to return to the peg, so the “loss” only materializes if you had withdrawn your deposit and sold the USDx at a price above $1.
If the Backstop Pool is empty, the system uses a secondary liquidation mechanism called redistribution. In such a case, the system redistributes the debt and collateral from liquidated Positions to all other existing Positions. The redistribution of debt and collateral is done in proportion to the recipient Position's collateral amount.
