The following table breaks down how every event in a lending pool impacts pool value, debt token supply and debt token price. Also presented here is how stablecoin liquidity managed by the protocol and borrowers changes with these events.

Pool value increases with more deposits. Debt tokens are minted proportionally thus maintaining the debt token price.

Stablecoin liquidity directly managed by the protocol increases. | Increases | Increases | No impact | Increases | NA | | Withdrawals

Pool value decrease as users burn their DT and take their proportion of the pool value.

Stablecoin liquidity directly managed by the protocol decreases. Note a user can only withdraw in one event a stablecoin amount less than or equal to the available liquidity. | Decreases | Decreases | No impact | Decreases | NA | | Loan issued

Loan issuance has no immediate impact on the pool value. There is no credit provisioning. e.g. pool value being reduced based on an assumed default.

Available liquidity held in pool decreases as the principal loan value is transfered form the pool to the creditor. | No impact | No impact | No impact | Decreases | Increases | | Loan repayments (principal)

Repayments on the loan principal do not increase pool value. However, it does return liquidity to the pool. | No impact | No impact | No impact | Increases | Decreases | | Loan repayments (interest)

Repayments of a loan’s accrued interest result in an increase in a pool value. Liquidity also increases. | Increases | No impact | Increases | Increases | Decreases | | Defaults & liquidations, over collateralised loan

When a loan defaults on its maturity date it is liquidated. The max amount of collateral liquidated is equal to the loans total outstanding balance. This includes the principal and all accrued interest. As the loan is over collateralised this event it similar to a principal and interest repayment. | Increases | No impact | Increases | Increases | No impact | | Defaults & liquidations, under collateralised loan

A loan is under collateralised if at the time of liquidation the collateral value is less than the total outstanding balance. If the collateral liquidated fails to cover the initial principal then pool value and debt token price decrease by the amount not covered by collateral.

Note that if the collateral did cover the principal amount the pool value would not decrease. | Decreases | No impact | Decreases | Increases | No impact |