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Reserve Fund

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Reserve Fund

The Reserve Fund is a protocol-owned safety mechanism designed to help protect liquidity providers in specific failure scenarios. It is funded by protocol fees and governed entirely by the StackFi. The model can be expanded or adjusted over time through internal governance decisions.

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How the Reserve Fund Is Funded

Unlike most DeFi protocols that collect fees as idle assets, StackFi accrues protocol fees in the form of sTokens.

  • sTokens represent liquidity provider positions in StackFi pools

  • By holding sTokens, the protocol treasury itself becomes a passive lender

  • This means protocol fees are automatically redeployed into productive liquidity, rather than sitting idle

As a result, the Reserve Fund grows by default, without requiring additional transactions to put treasury assets to work.

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How the Reserve Fund Is Used

By default, accrued protocol fees are used to cover pool losses that may occur if a Credit Account is closed at a loss for the pool. This can happen in cases such as:

  • Bad liquidations

  • Delayed liquidations

  • Temporary under-collateralization

When this occurs:

  • The protocol burns its own sTokens from the treasury

  • This restores the correct exchange rate of Tokens

  • Liquidity providers are compensated automatically, up to the available Reserve Fund balance

In this way, the Reserve Fund acts as an insurance-like mechanism for liquidity providers.

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Control & Flexibility

All protocol fees are received by the platform in sTokens by default. However, governance can choose to:

  • Unwrap a portion of sTokens into their underlying assets

  • Hold those assets as non-insurance funds

Only assets held as sTokens are counted toward the Reserve Fund. Any assets that have been unwrapped and held directly are not part of the insurance mechanism.

This logic applies to V3 contracts only.

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What Counts as the Reserve Fund

The address holding protocol fees may contain multiple asset types. However:

  • Only sToken balances are considered part of the Reserve Fund

  • Other assets held by the platform are not included in Reserve Fund calculations

When evaluating the size or strength of the Reserve Fund, only sToken balances are relevant.

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Scope & Limitations

The Reserve Fund is not designed to cover all risks.

  • It does not insure against smart contract exploits, hacks, or protocol-level failures

  • It is specifically intended to mitigate under-collateralization caused by incorrect or untimely liquidations

Users should review the Risks section for a full overview of scenarios not covered by the Reserve Fund.

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