Reserves

Reserves are balances of underlying assets, stored internally within the protocol, which automatically protect users from bad debts. Reserves can also be withdrawn or used through the governance process.

The reserve fund is generated in two ways: the difference between the interest paid by the borrower and the interest earned by the underlying asset supplier is included in the agreement as a reserve fund. Second, the liquidation process uses and can increase protocol reserves based on target reserve levels set by governance.