Protocol-Owned Liquidity (POL)

Protocol-owned liquidity (POL) is the spread surplus that a vault accumulates over time: borrowers pay R(U) × (1 + s), suppliers earn R(U) × (1 − s), and the residual 2s difference compounds inside the vault as invisible over-collateralisation. POL makes that surplus visible and — under a governance-gated share cap — extractable.

The code and role identifiers that touch this feature use the Pols / POLS spelling (the wrapper contract is named Pols); the concept itself is referred to as POL throughout these docs.

Where the surplus comes from

The interest spread s (default 10%) is the protocol's margin. Every accrual window produces a small surplus on each side:

• Supply side. Suppliers are credited interest at the reduced rate R(U) × (1 − s), so their position grows more slowly than the full gross rate.
• Borrow side. Borrowers are charged interest at the increased rate R(U) × (1 + s), so their debt grows faster than the gross rate.

The difference between "what was actually credited/charged" and "what the zero-spread gross rate would have produced" is the POL increment for that position and that window. Summed over all users and all time, it is the vault's accumulated surplus.

How it is tracked

POL is tracked position-level, not vault-level. Each Supply and Borrow Position accumulates its own polAccrued() figure, computed from a zero-spread projection: for every accrual window the position re-computes what its balance would have grown to if the spread had been zero, and the gap against the actual (spread-applied) value is the increment.

• Supply: polAccrued() += max(total₀ − total, 0)
• Borrow: polAccrued() += max(total − total₀, 0)

The zero-spread projection re-baselines the stale portion of the window at the base spread, which makes the increment exact for any user while SPREAD is constant. The only residual error is a small, transient, uniform term during a SPREAD governance transition.

The vault then sums both sides:

pol() = supply.polAccrued() + borrow.polAccrued()

pol() is monotonic — it never decreases, and it is never reset.

The extraction cap

Extraction is gated by a single vault parameter, POL_FETCHABLE_SHARE (default 0%):

maxTotal     = pol() × polFetchableShare / WAD
maxFetchable = maxTotal − polFetched()
fetched      = min(amount, maxFetchable)

• polFetchableShare = 0 — nothing is extractable; the surplus stays protocol-resident.
• polFetchableShare = 100% — governance may fetch the full accumulated surplus.

The cap is cumulative, not per-call: it applies to the total surplus minus whatever has already been fetched, so repeated calls can never extract more than the share ceiling. The default is 0, so a vault is born "locked" — extraction only becomes possible after governance raises the share via lethargic governance.

What it means for users

Nothing, operationally. POL tracking runs in parallel with interest accrual and does not change any user-facing behaviour:

• Your rates and balances are unaffected.
• Interest accrual is fully decoupled from POL accounting.
• POL values are in underlying-asset units — no conversion needed.

Extraction only moves surplus out of a vault into a governance-chosen recipient, subject to the share cap. Depositors still own the full underlying backing; the extracted surplus is the portion the protocol had already priced in as margin.

Extraction (briefly)

Governance (or an operator with the right role) calls fetchPol(target, amount) on the Vault, or the Pols wrapper contract, which forwards to it. The recipient can be any address, or the zero address — which advances the fetched baseline without transferring anything (a "sentinel burn", used for bookkeeping). See Fetching and roles.

Why it matters

1. Visibility. The spread gap was previously accounting deadweight — a growing but unmeasurable over-collateralisation. POL turns it into an on-chain number.
2. Treasury optionality. The protocol can eventually sweep surplus to a treasury or buy back tokens, without changing user rates or the interest model.
3. Predictability. The lethargic share cap tells the market exactly what fraction of the surplus is extractable vs. protocol-resident, and that fraction can only change slowly.

Where to go next

• Fetching and roles — the Pols wrapper and role model
• Vault parameters — POL_FETCHABLE_SHARE and fees
• ERC4626 vaults — the vault contract that hosts POL
• Events and indexing — the FetchPol event