Insurance Pool

The Insurance Pool is a user depositable vault that earns reUSD from a share of the borrow fees as well as RSUP governance tokens. All reUSD deposited will be used to insure the protocol from any potential bad debt, as well as used during CDP liquidation events to buy the collateral.

CDP Liquidations

When a CDP is liquidated, any collateral deposited will be bought by the insurance pool directly using the deposited reUSD and distributed to the insurance pool holders. The reUSD used to purchase the liquidation will be burned. The crvUSD or frxUSD from the liquidation will be distributed to the insurance pool. Since liquidations tap into insurance pool for liquidations there is no need for flash loans or swaps to complete the liquidation. The liquidated collateral is moved to liquidation handler contract which attempts to withdraw all the underlying collateral from the lending pool. If there is not enough liquidity to withdraw all underlying collateral it can be continually attempted until able to be completed.

Bad Debt

In the event bad debt is detected in the system, reUSD deposited in the insurance pool will assume the risk and purchase all bad debt collateral. The reUSD used to purchase the bad debt will be burned. In the event the collateral is forcefully ejected as bad debt, insurance pool holders will need to withdraw the collateral from the lending positions themselves.

In the event the bad debt is larger than what is available in the insurance pool, the protocol will assume the extra bad debt, and the rest of the collateral will be held by the protocol.