Reserves

Reserves

Reserves are a balance of the base or collateral asset, stored internally in the protocol, which automatically protect users from bad debt. Reserves can also be withdrawn or used through the governance process.

Reserves are generated in two ways: the difference in interest paid by borrowers, and earned by suppliers of the base asset, accrue as reserves into the protocol. Second, the liquidation process uses, and can add to, protocol reserves based on the target reserve level set by governance.