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Collateral pools are single-asset pools where users can deposit approved assets as collateral to access the Teleportation mechanism. In return for their deposited collateral, users receive collateral pool tokens, which they can then use to borrow teleBTC.
Collateral pools are a crucial component in ensuring the safety of the Teleportation mechanism. To obtain a loan from the instant pool, users must provide their collateral pool tokens to the TeleSwap smart contract. If users repay their loans before the payback deadline, the TeleSwap contract returns their collateral pool tokens to them. However, if users fail to repay their loans on time, their collateral will be slashed as a penalty for defaulting on the loan.
The Collateral Pool Factory contract is responsible for creating collateral pools, each with its own specific collateral ratio. This ratio is determined by the volatility of the underlying assets. For instance, highly volatile assets will require a higher collateral ratio, which will limit the maximum amount users can borrow.