Nolus Reserve Contracts are the protocol’s insurance fund. They exist to protect lenders when in-protocol debt cannot be repaid in full, whether the cause is a market event or a technical one. Here is how they work.
Addressing Inefficiencies
Reserves cover the gaps that leverage protocols run into: a liquidation that fires late because of a faulty price movement, a derivative asset that de-pegs, or a technical failure that delays action.
They are funded automatically from liquidation spreads on margin positions and from swap fees, so the fund refills itself as the protocol is used. No separate contribution is required from lenders or borrowers.
Maintaining System Health
When one of those situations occurs, the reserve contracts act on their own, without a manual step or a governance vote. That keeps unpaid debt from accumulating quietly inside the protocol and keeps the system solvent.
Example Scenario
Suppose an asset held in a margin position loses more than 70% of its value within a single block. Nolus triggers a liquidation, but the proceeds fall short of the outstanding debt.
The reserves cover the difference. The lender is repaid in full, and the shortfall is absorbed by the protocol rather than by the people who supplied the capital.