Hundred Finance's community-provisioned liquidation system
The user interface on some select markets on certain networks on which Hundred Finance is deployed has an additional means of interacting with the protocol: the community-provisioned backstop. These markets, indicated by the B.Protocol Backstop logo, allow users to deposit the relevant asset and have it designated liquidity available to fund automated liquidations.
An asset marketed integrated with the Backstop, as indicated by the green logo
Assets supplied to the backstop both accrue interest from borrowers and, whenever a liquidation is carried out using funds from the backstop, receive a proportion of the reward paid (approximately 8% of the liquidated amount). What is more, they also receive their own HND rewards emissions.
During periods of extreme market volatility, yields on assets in the backstop can prove lucrative due to the potentially large amount of funds being liquidated and distributed to backstop stakers on a pro-rata basis.
How to provision the Backstop tutorial
Supplying assets to the backstop is a matter of:
- Selecting a qualifying network on which the B.Protocol Backstop integration has occurred
- Clicking on the asset in the Supply Market
- Approving the token to be staked in the Backstop tab
- Choosing the amount of the token to be staked, either by entering the figure or pressing Max to deposit the entire amount available in the user's wallet
- Pressing the Deposit button to initiate a token approval and the transaction to stake the tokens
When withdrawing assets from the backstop, if the conversion of the liquidated funds has not yet occurred, there is the possibility that a mixture of assets will be received in return. For example, a user who provided 100 USDC initially may receive back 90 USDC and 15 DAI. This would be because a liquidation occurred in which the USDC was used to purchase DAI collateral at a discount and it has not yet been converted back into USDC. As a range of collateral options exists on Hundred Finance, this can potentially result in a range of assets being deposited into a backstoppers account at withdrawal, though modeling dictates that the cumulative value of these assets will exceed that of the stablecoin initially provided.