Stability Pool, Explained: The 5 Questions Every Bitcoin Borrower Should Ask About Liquidation

If you're going to borrow against your Bitcoin, there's one part of the machinery worth understanding cold: what happens if your loan gets liquidated, and who's on the other side of it. With Money Protocol — where you can borrow against Bitcoin at 0% interest — the answer runs through a mechanism called the stability pool. Here it is as five plain questions.

1. What triggers a liquidation?

Your borrowing position is a vault: RBTC (Bitcoin on Rootstock) locked in, BPD (a dollar-pegged stablecoin) minted out. Its health is one number — the collateral ratio — and it has a hard floor of 110%.

Fall below 110% and your vault is eligible for liquidation. The key thing to notice: 110% means the collateral is still worth more than the debt. The protocol intervenes while your position is over-collateralized, not after it's gone underwater. That single design decision is what lets everything downstream work without anyone taking a loss.

2. When my vault is liquidated, who cancels the debt?

The stability pool — a communal reserve of BPD that other users have deposited voluntarily.

In one atomic transaction, the protocol burns BPD from the pool to erase your vault's debt, and sends your vault's RBTC collateral to the pool in return. No auction, no open-market dump, no counterparty negotiation. The debt is cancelled against a pre-funded reserve, and it settles in a single block.

3. Why would anyone deposit into the stability pool?

Because they come out ahead, thanks to that 110% floor.

Liquidations fire while collateral is worth about $1.10 for every $1 of debt. So when the pool burns, say, 10,000 BPD and receives ~$10,800 of RBTC, depositors net an ~$800 gain — paid in Bitcoin, split by share of the pool. In effect, stability-pool depositors are buying liquidated BTC at a built-in discount. Their BPD gradually converts into Bitcoin as liquidations happen. That reward is what keeps the pool funded, and a funded pool is what makes fast, clean liquidations possible.

4. What if the pool isn't big enough?

There's a fallback: redistribution. If liquidations outrun the BPD available in the pool, the leftover debt and collateral get spread across the remaining healthy vaults, proportional to their collateral. It guarantees the protocol stays solvent even in the extreme case — the debt never goes unbacked, and no outside bailout is ever required.

Above that sits Recovery Mode: if the whole protocol's total collateral ratio drops below 150% (a market-wide crash), the rules tighten and vaults under 150% become liquidatable to restore health quickly. Lesson for borrowers — in a real downturn, treat well above 150% as your safe zone, not 110%.

5. Why is this better than how a normal crypto loan gets liquidated?

Because it doesn't sell your collateral into a falling market.

A leveraged position or a centralized lender liquidates by dumping collateral on the open market, which drives the price down, which liquidates the next borrower — the cascade that has wiped out accounts in every big crypto crash. The stability pool breaks that loop: liquidated Bitcoin moves sideways to willing depositors instead of down onto an order book. The system de-risks without amplifying the crash.

And all of it is enforced by public code — the 110% floor, the 150% threshold, the pool math — the same for everyone, unchangeable on someone's whim.

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The bottom line: the stability pool is the reason a self-custodial protocol can offer to borrow against Bitcoin at 0% interest and still hold together when the market turns. It clears bad debt in one self-funding transaction, rewards the people who backstop it, and keeps two more safety nets underneath.

Learn more at moneyprotocol.co or dig into the docs.