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Money Pool economics

In one paragraph

Each market has one USDG pool. Depositors put in USDG and receive shares, and a share's value is counted in USDG only. Whenever someone buys protection, the pool reserves in full, at the floor, the most USDG that protection could ever need at expiry; that is why protection is always for the full amount and never diluted. A depositor's income is the premium, paid in the market's asset and credited to every share second by second from purchase to expiry; the risk taken on is delivery: when the official price at expiry is at or below the floor, the reserved USDG is converted into the asset at the floor. Withdrawals can only take the unreserved part, and must be requested first and executed after a delay. This page explains why the rules are designed this way. The rules themselves are on Earn; parameter values are on Markets and parameters.

One market, one pool

NVDA protection is backed by the NVDA Money Pool and UNI protection by the UNI Money Pool; USDG in the two pools is never mixed. This is a deliberate choice: as a depositor, choosing a market means choosing which single asset's price risk you take, not a basket. Mixing two assets into one pool would only let a crash in one market eat into the principal of depositors in the other, who never collected a premium for it.

Shares and the share price

Depositing USDG gives you shares of the pool. The share price is simple:

\[ \text{share price} = \frac{\text{USDG in the pool}}{\text{total shares}} \]

that is, how much USDG each share in the pool corresponds to. In an empty pool the share price is 1. Shares minted on deposit = deposited USDG ÷ share price, rounded down; a withdrawal is computed the other way round at the same price, also rounded down.

Three rules fix what this price means:

  1. USDG in the pool contains only USDG principal, less what has been paid out on delivery. Premium and assets received on delivery do not enter the share price; they are credited by share separately.
  2. The share price falls only on delivery: the pool pays USDG at the floor, and the USDG in the pool decreases by exactly the amount that protection had reserved. Deposits, withdrawals, purchases of protection, releases and early exits do not change the share price.
  3. Shares are not transferable and cannot be used as collateral in other protocols.

Why keep the USDG account and the asset account apart? USDG principal is the collateral behind every share equally, and the withdrawable amount per share must be computable at any time from the share price alone. Premium and delivered assets arrive one position at a time, in NVDA or UNI, whose price moves; folding them into the share price would make it swing with the market and require a conversion price, exactly the dependency the pool avoids. So each depositor holds three things: USDG computed from the share price, which decides how much you can withdraw, plus claimable premium and claimable delivered assets, both in the asset and both claimable at any time.

Reserved and unreserved

At any moment the USDG in the pool falls into two parts:

  • Reserved: USDG already set aside for live protection. Each protection reserves "protected amount × floor", rounded up.
  • Unreserved: USDG in the pool minus the reserved part. It is the capacity available to new protection and the ceiling on what withdrawals can take.

Utilization = reserved USDG ÷ USDG in the pool. It is the input to the premium curve: the fuller the pool, the higher the rate new buyers pay, and at 100% utilization no new purchases are accepted. The curve itself is explained in How the premium is priced.

The reserved amount moves with the following events:

Event Reserved USDG in the pool
Protection bought Up by that position's reserve Unchanged
Early exit Down by that position's reserve Unchanged
Release at expiry (price above the floor) Down by that position's reserve Unchanged
Delivery at expiry (price at or below the floor) Down by that position's reserve Down by exactly the same amount
Batch voided Down by that position's reserve Unchanged
Deposit / withdrawal Unchanged Up / down 
flowchart LR
    D[Depositor deposits USDG] --> F[Unreserved USDG]
    F -->|Protection bought: reserve protected amount × floor| R[Reserved USDG]
    R -->|Release / exit / void| F
    R -->|Delivery: paid to the buyer at the floor| B[Protection buyer]
    F -->|Withdrawal: unreserved part only| W[Depositor takes USDG back]

The "remaining capacity" shown on the page is how much new protection the unreserved USDG can back, in units of the asset: unreserved USDG ÷ floor, rounded down.

Why capital is reserved in full at the floor

The most a protection can cost the pool at expiry is fixed the moment it is bought: protected amount × floor. It does not move with later prices, because the floor never changes once written into the position, and delivery always pays at the floor. Since that amount is certain, the simplest and most honest thing to do is to lock the whole of it at purchase.

Doing so buys three properties:

  • Delivery is always funded. There is no need to find money at expiry; it does not depend on new deposits, on the outcome of other positions, or on any capital of the protocol's own.
  • Protection is always for the full amount. A buyer either gets the amount entered or is refused because the remaining capacity is too small, and the page shows that capacity. There is no pro-rata protection and no after-the-fact haircut.
  • A depositor's maximum loss has a clear bound. A protection can never take more USDG out of the pool than it reserved, even if the asset's price goes to zero.

The cost is capital efficiency: the same USDG can back only one protection at a time. That too is deliberate. Uncovered selling, leverage and partial collateral are not allowed at launch: they let the same USDG collect more premium, at the cost of possibly being unable to pay in an extreme move, which happens precisely on the day protection is worth the most.

The protocol also provides no backstop capital: at launch the capacity is zero and grows with deposits. The risk depositors take is not underwritten by anyone, and, after the protocol share, the premium is theirs alone.

The shape of the depositor's payoff

Seen from one protection, depositors as a whole face two outcomes:

  • Official price at expiry above the floor: the protection is released, the pool's USDG is untouched, the premium is kept.
  • Official price at expiry at or below the floor: delivery. The pool pays out the reserved USDG at the floor and receives the protected amount of the asset. Valued at the official price of that moment, the asset is worth "protected amount × expiry price", less than the USDG paid; the difference is "floor − expiry price" times the protected amount.

In one line: the result of one protection for the pool = premium (in the asset) − max(floor − expiry price, 0) × protected amount. The first term is fixed and already collected at purchase; the second is zero when the expiry price is above the floor, grows linearly with the fall when the price drops, and never exceeds the reserved USDG. That is the "capped above, bounded below" shape: at best the whole premium is kept; at worst the whole reserve has been swapped into an asset whose price went to zero.

Three things need to be clear here:

  1. Delivery is not a synonym for loss. After delivery you hold the asset, not nothing; when you claim it and what you do with it is your own decision. But the USDG paid out has left the share value and does not come back if the asset later recovers.
  2. The premium is not a promised return. It is paid in the asset, its USDG value moves with the market, and the shortfall on a single delivery day can exceed the premium collected over the preceding weeks. Part of your USDG may be converted into the asset at the floor, and the asset may be worth less at that moment than the USDG you gave up (the ratios are on Earn). This is the core risk a depositor takes; the premium is the compensation for it.
  3. Correlation concentrates on one day. All protection in a market expiring on the same day settles at one price. In a calm week every protection is released; on a sharp down day every protection whose floor is breached is delivered together. A depositor's experience is not "a small gain every day" but "premium on most days, delivery on a few".

Depositors do not decide on individual protections. The pool as a whole backs every protection, and every share carries its proportional part of every outcome and receives its proportional part of every premium.

How premium is credited to shares

The premium is taken in the asset from the deposited amount at purchase. After the protocol share (the ratio is on Markets and parameters), the remainder is released linearly, second by second, to that market's Money Pool from the moment of purchase to the moment of expiry.

"Credited by share" means: the premium released in each second is divided by the total shares at that second and added to a running "cumulative premium per share" counter; each depositor's claimable premium = your shares × (the counter now − the counter when you last settled up). The effects:

  • Premium goes only to those holding shares at the moment it is released: nothing released before you deposited or after you withdrew is yours.
  • During the withdrawal delay your shares still count, still receive premium and still carry delivery.
  • A new deposit does not dilute premium already released; it only shares in what is released afterwards.

Two situations interrupt the linear release:

  • The buyer exits early: the part not yet released is credited to the pool at once, to the depositors of that moment. The buyer gets no refund.
  • The batch is voided: the part not yet released is refunded to the buyer, and the released part stays with depositors. The protocol share is not refunded. The rules are in Why one settlement moment a day.

Assets received on delivery are credited by share in the same way. Both can be claimed at any time, and claiming does not touch your USDG shares. Rounding directions: premium and reserves round up, shares and refunds round down; the plain-words explanation is in Design notes.

Withdrawals: unreserved capital only, and a wait

Reserved USDG has been promised to live protection and cannot be taken out at the same time, or delivery could not be paid. So the ceiling on a withdrawal is always the unreserved USDG. The value of your shares can be computed at any time; the part that can be cashed out at once depends on how much USDG is unreserved right then.

A withdrawal takes two steps:

  1. Request: the number of shares you want to withdraw and the time it can be executed are recorded (the request time plus the withdrawal delay; the value is on Markets and parameters).
  2. Execute: once that time has come, the amount paid = min(the requested shares at the share price, the unreserved USDG). If that is not enough, part is paid first and the remaining shares keep waiting, with no new request needed, and are paid out as protections expire.

While the request is pending, shares carry risk and receive premium as usual. Why the delay? Because settlement is public and scheduled: if withdrawals were paid instantly, a depositor could pull USDG out after the price has already fallen through the floor but before 12:00 UTC, leaving the imminent delivery to everyone else. The delay makes every share bear the outcome of the period it backed. It is short, and it is not a lock-up.

Testnet difference

On the testnet, withdrawals are instant, with no delay, but still limited to the unreserved part; and premium is credited once a day at 12:00 UTC per position rather than released continuously second by second. See the Testnet guide.

Pool cap and minimum purchase

Each market's Money Pool has a total cap; once it is reached, no further deposits are accepted. The cap limits the market's total exposure, and in the early period keeping it within what demand can absorb makes more sense than letting deposits sit idle and earn no premium.

Each protection has a minimum notional value, converted to USDG at the purchase price. It prevents dust positions, which cost as much to settle as large ones while producing almost no premium. On the depositor side, the minimum single deposit and the per-wallet and per-entity caps are not yet decided.

The current values of these parameters are on Markets and parameters.

Worked examples

All figures are illustrative and follow the NVDA example on the Protect page: price 220 USDG, floor 209 USDG (95%), deposit 10 NVDA, rate 0.8%, premium 0.08 NVDA, protected amount 9.92 NVDA, reserve 9.92 × 209 = 2,073.28 USDG.

Share price. The NVDA pool holds 1,000,000 USDG and 1,000,000 shares; the share price is 1. After this protection is delivered, the USDG in the pool becomes 997,926.72 and the share price 0.99792672. Someone now deposits 100,000 USDG and receives 100,000 ÷ 0.99792672 ≈ 100,207.7 shares (rounded down). The new depositor enters at the true value of that moment: they neither bear the delivery that has already happened nor share in the 9.92 NVDA already credited.

Your week. You hold 100,000 USDG in the pool, a 10% share.

  • The part of this protection's premium that goes to the pool is 0.072 NVDA (the premium less the protocol share; the ratio is on Markets and parameters), released second by second over 7 days, and you accumulate 0.0072 NVDA.
  • Expiry price 231: release. Your USDG is unchanged and the premium is kept.
  • Expiry price 198: delivery. The pool pays 2,073.28 USDG and receives 9.92 NVDA. Your USDG falls by 207.33 and 0.992 NVDA is credited to you. At 198, that 0.992 NVDA is worth 196.42 USDG, 10.91 USDG less than the 207.33 paid; the 0.0072 NVDA of premium you received is worth about 1.43 USDG at 198. This one protection is a net loss for you; whether it was worth it depends on the premium received from the other protections released that week.

Withdrawal. The pool holds 1,000,000 USDG, 950,000 reserved and 50,000 unreserved. You request to withdraw the shares corresponding to your full 100,000 USDG. After the delay only 50,000 can be taken first (assuming nothing changed meanwhile); the remaining shares keep waiting and are paid out as reserves are freed by expiring protections.

Key takeaways

  • One USDG pool per market; choosing a market as a depositor means choosing which asset's risk you take.
  • Share price = USDG in the pool ÷ total shares, and it falls only on delivery; premium and delivered assets are credited by share separately and never enter the share price.
  • Every protection reserves USDG in full at purchase as "protected amount × floor", so delivery is always funded, protection is always for the full amount, and a depositor's maximum loss is bounded.
  • A depositor's result = premium − max(floor − expiry price, 0) × protected amount: premium on most days, delivery on a few. The premium is not a promised return.
  • Premium is released second by second and credited by share; it goes only to those holding shares at the moment of release; the remainder on exit goes to the pool, the remainder on void goes back to the buyer.
  • Withdrawals can only take unreserved USDG, are requested first and executed after the delay, and are partial when there is not enough; during the delay shares still carry risk and still earn premium.
  • The pool cap limits total exposure and the minimum purchase prevents dust positions; the depositor-side minimum deposit and caps are not yet decided.