What happens if liquidations occur while the stability pool is unfunded?

In the event that the stability pool lacks funds to cover liquidations, an alternative process known as "redistribution" is activated within the EpsiLoan Protocol. Here's how the redistribution process works:

• If the stability pool does not have adequate funds to cover the debt from liquidated Vaults, it is considered unfunded. This situation may occur due to various factors, such as rapid liquidations or depletion of the stability pool reserves.

• In the absence of sufficient funds in the stability pool, the system initiates the redistribution process. During redistribution, the debt and collateral held within the liquidated Vault are reallocated to all other Vaults currently in existence within the protocol.

• The reallocation of debt and collateral is performed based on the collateral value of each receiving Vault. Vaults with higher collateral values receive a proportionally larger share of the redistributed assets, while Vaults with lower collateral values receive a smaller share.

• As a result of redistribution, all Vaults within the system may experience changes in their debt and collateral balances. Vaults with higher collateral values may see an increase in their collateral holdings, while Vaults with lower collateral values may see a decrease.

• The redistribution process is designed to ensure that system solvency is maintained, even in the absence of sufficient funds in the stability pool. By reallocating assets among Vaults, the system aims to mitigate the impact of unfunded liquidations and uphold the stability and integrity of the protocol.

In summary, if liquidations occur while the stability pool is unfunded, the redistribution process reallocates debt and collateral among Vaults based on their collateral values. This mechanism helps maintain system solvency and ensures the continued stability of the EpsiLoan Protocol.