Redistribution

What is Redistribution?

Redistribution occurs when vaults are uncollateralized but the Stability Pool has been depleted. When redistribution occurs debt and collateral from undercollateralized vaults are redistributed across all vaults. This is a rare and unexpected protocol state.

How Redistribution works

• Occurs when a vault is under-collateralized and ready to liquidate but the Stability Pool is empty.

• The uncovered debt and collateral from the liquidated vault are added to global protocol accumulators. Each remaining vault's share of this redistributed debt and collateral is then calculated based on its proportion of global collateral when needed affecting its balances indirectly.

• Vaults periodically accrue their share of protocol debt and collateral. This can cause CR to decrease but will also produce a net increase in the USD value of the vault.

My collateral and debt went up without my action?

This is the result of redistribution. If vaults are liquidated and the Stability Pool is empty every borrower will receive a portion of the liquidated collateral and debt as part of a redistribution process.

Redistribution example

Here are the starting conditions. For simplicity sBTC collateral value is expressed in USD terms:

Vaults	Debt	Collateral	CR	Net Value
Bob	4000	6000	150%	2000
Alice	2000	5000	250%	3000
Charlie	3000	3300	110%	300

The Stability Pool is depleted and so Charlie's vault will be redistributed proportionate to the other vault's share of global collateral.

• Bob's vault contains ~54% (5000 / 11000) of global collateral

• Alice's vault contains ~45% (6000 / 11000) of global collateral

Redistribution	Debt added	Collateral added
Bob	3000 * (5000 / 11000) = 1363.6363636364	3300 * (5000 / 11000) = 1800
Alice	3000 * (6000 / 11000) = 1636.3636363636	3300 * (6000 / 11000) = 1500

After Redistribution is complete:

Vaults	Debt	Collateral	Old CR	New CR	Old Net	New Net
Bob	5,636.36	7,800	150%	137.92%	2000	2,163.638
Alice	3,363.64	6,500	250%	193.24%	3000	3,136.36
Charlie	0	0	110%	--	300	--

Notice that Charlie's bad debt has been removed and Alice and Bob have experienced a decrease in Collateral Ratio and an increase in net dollar value.