Backup Pool and rewards

Owning the Protocol's Token has its perks, one of them is the ability to deposit it into the Backup Pool with the goal to earn rewards from the protocol. But like everything in the world: There are no rewards without risk... Let's talk about the pool, its rewards, and the risks associated with it.

The first thing to understand is that this pool works on a time-lock period, which means that you should consider this before using it. What does "time-lock period" mean? this means you need to lock the token for a pre-defined period in order to be able to earn the rewards from the protocol. After the time has passed you will be able to unlock your deposit without issues.

Keep in mind that after the deposit has matured you will not receive more rewards so you will need to enroll again into a locking period (You can enroll again without needing to withdraw your deposit). You can increase your deposit when you want and even if the deposit is still locked but keep in mind the time lock period will start again.

The Backup Pool is the second mechanism used to keep the protocol healthy. When the first mechanism (the Safety Pool) fails in its task of liquidating all of the unhealthy Vaults (for example if it ran out of funds). The Backup Pool will use the funds deposited to liquidate the Vaults in the protocol.

This pool works similarly to the Safety Pool with the difference that the deposit is with the Protocol's Token and that it works with time-lock periods.

The Backup Pool doesn't distribute Protocol's Tokens.

The Protocol's Fee is charged on different operations across the protocol, from this fee the Foundation saves enough funds to pay its yearly expenses, but at the same time uses this fee to reward Participants who lock their Protocol's Token.

The fee obtained is split at the Share Rate and the funds are distributed to all Participants with active staking deposits (an active skating deposit is a deposit that is still locked).

As an example let's say there was a total of $750,000 in fees collected during the period you locked your deposit, this fee is split at the Share Rate and your deposit was about 4.5% of the total value locked. Your reward will be:

There is a risk associated to the locked funds, just like with the Safety Pool there is a chance that a Vault's Liquidation happens when the Collateral Ratio is under 100%, at that point the collateral distributed across the depositors will have a lower value than the used to pay back the Vault's debt.

You will also get collateral instead of the initially deposited Protocol's Token, more than a risk this is possible just an unwanted result.