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description: A Safety Net for the Balance Protocol
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# Buffer Pool

The Buffer Pool, a critical component of the Balance Protocol, is designed to ensure the system's stability and long-term sustainability, thereby prioritizing a robust and healthy ecosystem for its users.

The Buffer Pool plays a crucial role in safeguarding the Balance Protocol by:

* Generating income for the ecosystem.
* Maintaining a healthy reserve for liquidations.
* Potentially increasing the value of FTD tokens through burning.
* Adapting to future needs through community governance.

### Here's how the Buffer Pool functions:

**Generating Income:**

* The Buffer Pool accumulates income primarily through liquidation penalties collected in USDT (Tether). These penalties occur when borrowers fail to maintain their collateralization ratio in their BLC loans.

**Maintaining a Healthy Reserve:**

* The Buffer Pool maintains a minimum reserve threshold in USDT.
* Once the USDT balance exceeds this threshold, the excess funds are automatically used to purchase FTD tokens, the governance token of 42DAO. These FTD tokens are then permanently removed from circulation through a process called burning. This reduces the overall supply of FTD tokens, potentially increasing their value.

**Supplementing the Buffer Pool:**

* In situations where the Buffer Pool has a low USDT balance (below $10,000 USD), a smart contract is triggered. This smart contract mints new BLC tokens and uses them for an auction. The proceeds from the auction are then used to replenish the USDT reserves in the Buffer Pool, ensuring it has sufficient funds to function effectively.&#x20;

**Temporary Buffering During Liquidations:**

* If the Buffer Pool has insufficient funds during a liquidation event, the smart contract can mint BLC tokens temporarily. These BLC tokens are used for the liquidation auction, ensuring a smooth process. However, these minted BLC tokens are not burned and are returned to the Buffer Pool after the auction is complete. This mechanism ensures the Buffer Pool can maintain a minimum level of USDT reserves even during high liquidation activity.

**Community Governance:**

* The initial parameters of the Buffer Pool, such as the minimum USDT threshold and BLC minting limits, are pre-defined by the Balance Protocol. However, the 42DAO community, through its governance process, can vote to modify these parameters in the future. This ensures the Buffer Pool remains adaptable and responsive to the evolving needs of the ecosystem.
