Liquidation and the Stability Pool

jAssets utilize a two-step liquidation mechanism in the following order of priority:

1. Offset under-collateralized Vaults against the Stability Pool containing jAsset tokens.

2. Redistribute under-collateralized Vaults to other borrowers if the Stability Pool is emptied.

The jAsset protocol primarily uses the jAsset tokens in its Stability Pool to absorb the under-collateralized debt, i.e., to repay the liquidated borrower's liability.

Any user may deposit jAsset tokens into the Stability Pool. This allows them to earn the collateral from the liquidated Vault. When a liquidation occurs, the liquidated debt is canceled with the same amount and type of jAsset from the Pool (which is burned as a result), and the liquidated collateral is proportionally distributed to depositors.

Stability Pool depositors can expect to earn net gains from liquidations, as in most cases, the value of the liquidated collateral will be greater than the value of the canceled debt (since a liquidated Vault will likely have an ICR just slightly below 110%).

If the liquidated debt is higher than the amount of available jAssets in the Stability Pool, the system tries to cancel as much debt as possible with the tokens in the Stability Pool and then redistributes the remaining liquidated collateral and debt across all active Vaults.

Anyone may call the public batchLiquidateTroves() function with a custom list of under-collateralized Vault addresses to attempt to liquidate.