In the majority of circumstances where the CR falls below 130, the continuous and smooth upward pressure of the User Rebalancing Pool will easily restore it, thereby maintaining system stability. The mechanism only runs into problems if the downward pressure on the CR is persistent or extreme enough to exhaust the Rebalancing Pool’s supply of fETH. In this edge case, the protocol has two stabilization mechanisms executed automatically using accrued revenue from the protocol treasury. Each of these mechanisms’ behaviour is governed by on-chain parameters. Neither mechanism is engaged unless the Rebalancing pool supply of fETH has been completely exhausted. Those mechanisms are:
1. xETH Minting Incentives: For xETH minting incentives, earned revenue from the treasury is used to fund a temporary xETH minting bonus. xETH minting is the most powerful and growth-positive way to re-stabilize f(x), so it is intended to be deployed first if the Rebalancing Pool is exhausted. The relevant parameters for this mechanism are the bonus size and maximum CR limit.
2. Protocol Rebalancing: For Protocol Rebalancing, earned revenue from the treasury is used to buy fETH tokens on the secondary market and then redeem them for stETH from the reserve. Protocol rebalancing is not quite as effective as xETH minting for re-stabilization. Still, it has the advantage of being immediately executable, rather than relying on the market demand for xETH(even subsidized). Parameters for this mechanism include the purchase size, maximum slippage losses, and maximum CR limits.