The Stability Pool, Explained: Where Liquidated Bitcoin Goes and How the System Pays for Itself

Every Bitcoin-backed lending system has to answer one hard question: when a loan goes bad, who eats it? In traditional finance the answer is a lender's reserves, an insurance fund, or — in the 2022 CeFi blowups — the customers themselves, who discovered too late that their "safe" yield was funding everyone else's bad bets. Money Protocol answers it with a single, elegant mechanism most people never bother to understand: the stability pool. Once you get how it works, the whole protocol stops looking like magic and starts looking like plumbing.

Start with the problem it solves

On Money Protocol, you lock RBTC (Bitcoin on Rootstock) into a vault and mint BPD, a dollar-pegged stablecoin, against it at 0% interest. Your vault must stay above a 110% collateral ratio — at least $1.10 of Bitcoin behind every $1 of BPD you've minted. If the BTC price falls and your ratio slips under 110%, your vault is eligible for liquidation.

But "liquidation" is just a word until you ask the mechanical question: at the instant a vault is closed, something has to repay its debt and someone has to take its collateral. That something is the stability pool.

How the pool works

The stability pool is a reserve of BPD that users deposit voluntarily. They're not borrowers — they're providing a backstop, and they get paid for it.

When a vault breaches 110% and is liquidated:

1. The pool's BPD is used to cancel the liquidated vault's debt. The bad debt disappears immediately.
2. In exchange, the pool receives that vault's RBTC collateral.

Here's the clever part. Liquidations trigger around 110%, which means the collateral being seized is worth roughly $1.10 for every $1 of debt it cancels. Stability-pool depositors give up BPD and receive Bitcoin worth more than the BPD they gave up. They are, in effect, buying liquidated Bitcoin at a discount as their reward for keeping the system solvent.

Why this design is better than the alternatives

Sit with what just happened. The system absorbed a bad loan instantly and automatically, with no outside money, no central treasury writing a rescue check, and no socializing of losses onto unsuspecting users. The people taking the risk — stability-pool depositors — opted in knowingly and got compensated in the same transaction. The borrower who got liquidated keeps the BPD they already borrowed; they only lose the collateral that backed it, per a rule published in advance.

Compare that to the CeFi model, where a custodian quietly lent your deposits into opaque positions and, when those positions failed, simply froze withdrawals and let everyone find out together. The stability pool is the structural opposite: transparent, self-funding, and incentive-aligned.

What it means for you, on either side

If you're a borrower: the stability pool is the reason liquidations are clean, fast, and predictable. There's no chaotic fire sale and no discretionary decision about your position — just a mechanism that clears your debt the moment your ratio fails. Keep your ratio high (200%+ is the sane default) and you stay out of its way entirely.

If you're a holder looking to earn: depositing BPD into the stability pool is a way to accumulate Bitcoin at a discount during exactly the volatile moments when liquidations cluster, plus a share of protocol rewards routed through the MP token. It's the earning side of the same machine — no governance to manage, no lockups dressed up as features, just a defined role with a defined payoff.

The bigger point

The stability pool is the quiet engine that lets Money Protocol offer 0% interest, hold a stable peg, and never depend on a trusted middleman. It turns the scariest moment in any lending system — a default — into a routine, self-financing transaction. The exact mechanics, including the liquidation math and reward structure, are documented at docs.moneyprotocol.co, and you can borrow against Bitcoin at 0% interest — or provide the backstop — whenever you've seen enough to trust the plumbing.

Most people never look under the hood. The ones who do tend to trust what they find here a lot more than what they found at the custodians.