Backstop Pool

Aka "Market Making Pool"

Despite not being directly involved in Swaps, the Backstop Pool plays a central role in the design of Nabla, as it covers the Swap Pools’ major risks. While the Swap Pool liability tokens represent the right to withdraw a certain share of the pools liabilities, the Backstop Pool LP tokens represents a share of the total backstop liquidity, which is defined as the sum of $USDC from the Backstop Pool, all surplus assets of Swap Pools with coverage ratio >= 1, minus all shortfalls in pools with coverage ratio < 1.

The Backstop Pool accepts deposits only in $USDC, but withdrawals can be done in either $USDC or any assets on which Swap Pools have a coverage ratio above one (in the latter case with a small bonus due to positive slippage). All users that choose an asset other than $USDC contribute to the rebalancing of the Backstop Pool towards a healthier pool state.

Backstop Pool Liquidity Providers take on the full market making risk on Nabla on leverage. Due to the intelligent, oracle-guided pricing, the losses and profits from these market making activities should in the long run (almost) equal out. Small instances of remaining directional losses (= corresponding to "remaining IL") may only occur whenever the delta between the current oracle price and the current "fair price" occasionally exceeds the swap fee f. Providing liquidity to the Backstop Pool therefore comes close to a cash neutral strategy, yet it earns a significant share a of all swap fees and token incentives. In order to ensure the systems solvency at all times and give the protocol time to react to large withdrawals, Backstop Pool LPs cannot withdraw their funds instantly, but have to wait for a certain amount of days after withdrawal initiation before they can finalize their withdrawal.

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