Good question! Stability Pools are a mechanism that Indigo uses to maintain price stability of iAssets. Liquidity Pools exist on DEXs (ex. SundaeSwap, MinSwap) where people can provide liquidity for a token pair.
I’ll try to keep it simple for now, as to try not to confuse you, but if you have any more questions please be sure to ask!
The Stability Pool is the first line of defense in maintaining system solvency. It achieves that by acting as the source of liquidity to repay debt from liquidated CDPs—ensuring that the total iAsset supply always remains backed.
When any CDP is liquidated, an amount of iAsset corresponding to the remaining debt of the CDP is burned from the Stability Pool’s balance to repay its debt. In exchange, the entire collateral from the CDP is transferred to the Stability Pool. The collateral is then distributed to the Stability Providers based on the amount of iAsset that the provider has provided.
I got the difference please tell it whether I got it or wrong after reading.
The main difference between the stability Pool and the liquidity pool is as follows.
The stability pool maintain the price of the CDP(Collateral debt position) by providing the collateral to the token and maintains the price accordingly. It means by adding the the left debt position of the iAsset the Stability Provider back the token by his tokens. (u can see the example how it works by seeing the screen shot added in the First Post.)
where as the Liquidity Pools are the onces we see in the DEXs for the trading a pair and maintaining the pool liquid for the buyers and the sellers.
I don’t have enough technical knowledge to know for sure, but some aspects of the Stability Pool seem similar to how Djed works. I wonder if the Indigo protocol could take some aspects of Djed’s algorithm to take advantage of mathematically proven protections against insolvency.