# Compounded Pool

## What is the Compounded Pool?

The Compounded Pool is an integral part of the DEIN system, designed to enhance liquidity and provide additional support for DEIN's whitelisted Policybooks. It functions as an extension to contracts, fueled by a combination of DEIN Native Staking (40%) and DEIN LP Staking (10%) tokens which together establish the Compounded Liquidity.

The Compounded Pool serves as a reserve that is only liquidated as a last resort, and the likelihood of such an event is extremely low.

## How does it work?

The Compounded Liquidity is shared by all of DEIN's whitelisted Policy Books, allocating funds on a first-come, first-serve basis. Additionally, there is a limit on how much funds each Policy Book can reserve at any given time.

The maximum Policy duration when using the Compounded Pool's funds is 5 epochs.

## What is the Compounded Liquidity?

Think of "Compounded Liquidity" as extra Collateral. To tap into it, users have to initially buy policies for the available Collateral (reduce Capacity to 0). Once that's exhausted, and the Collateral isn't sufficient for their Policy, users can then purchase Policies using Compounded Liquidity.

Policy Books can only reserve Compounded Liquidity up to the Compounded Pool share.

## What is the Compounded Pool share?

The "Compounded Pool share" can be simplified as a shared allowance for all whitelisted Policy Books. It determines the percentage that Policy Books can reserve to sell policies using the Compounded Liquidity.

## What is Compounded Liquidity Release

T**he Compounded Liquidity Release** triggers in the following cases:

If Underwriter provides Collateral to the Policy Book X,

When a Policy against Policy Book X, which reserves Compounded Liquidity, ends.

When a Payout funded by Compound Liquidity occurs against Policy Book X.

If any of the above conditions are met, the Compounded Liquidity reserved by the Policy Book X releases, and the current Compounded Liquidity distribution is re-calculated.

**Let's take a closer look at how the Compounded Pool operates:**

**Let's take a closer look at how the Compounded Pool operates:**

#### Assuming:

Compounded Liquidity: 1,000 USDT

Compounded Pool share: 60%

Current Reserved Compounded Liquidity: 0 USDT

*Therefore, each Policy Book in the DEIN system can reserve up to 60% of the Compounded Liquidity as additional funds, which equals to up to 600 USDT.*

Policy Book A has 600 USDT of Compounded Liquidity available for purchasing a Policy. Policy Book B has 600 USDT of Compounded Liquidity available for purchasing a Policy. Policy Book C has 600 USDT of Compounded Liquidity available for purchasing a Policy.

#### Let's assume the following scenario:

*When a user decides to purchase a policy from Policy Book A using the Compounded Liquidity, a value of 600 USDT is reserved.*

**Current Reserved Compounded Liquidity: 600 USDT**

The updated distribution of Compounded Liquidity: Policy Book A: 0 USDT (reserved 600 USDT) Policy Book B: 400 USDT Policy Book C: 400 USDT

*Suppose another user chooses to purchase a policy from Policy Book B using the Compounded Liquidity, with a value of 400 USDT.*

**Current Reserved Compounded Liquidity: 1000 USDT**

The revised distribution of Compounded Liquidity: Policy Book A: 0 USDT (reserved 600 USDT) Policy Book B: 0 USDT (reserved 400 USDT) Policy Book C: 0 USDT (no Compounded Liquidity left to reserve)

*Now, let's suppose an Underwriter provides 500 USDT to Policy Book A, which releases a portion of the reserved Compounded Liquidity that can further serve as additional Collateral.*

**Current Reserved Compounded Liquidity: 500 USDT**

The revised distribution of Compounded Liquidity:
Policy Book A: 500 USDT (reserved 100 USDT)
Policy Book B: 200 (reserved 400 USDT)
Policy Book C: 500 USDT
*
***Even though Policy Book C can theoretically reserve up to 600 USDT (60%) from the Compounded Liquidity, only 500 USDT is left to reserve.**

## How does the Compounded Pool affect the Premium pricing?

Premium pricing is determined based on the Capacity, taking into account the risk profile of the Policy Book and the impact of the Compounded Pool.

The pricing considers the contribution of the Compounded Pool to reflect the potential riskiness of a Policy Book.

Purchasing a Policy using Compounded Liquidity can be more cost-effective, particularly for new pools or those with limited funds accumulated. This supplies potential Policy Holders with competitive premium rates.

DEIN ensures accurate and fair premium pricing that takes into account the unique characteristics of the Compounded Pool and the liquidity of the Policy Book .

Please note that the likelihood of the Compounded Pool being fully liquidated is extremely remote, as it is designed to serve as a last resort measure. DEIN prioritizes the efficient utilization of its resources and employs various mechanisms to minimize the likelihood of exhausting the Compounded Pool.

### For a more detailed Compounded Pool Premium price explanation, please visit:

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