In collateral health checks, we introduce the concept of the Collateral pool. In this section, we introduce another, the Reserve pool. The Reserve Pool is the place where VELO tokens (or any collateralizable assets) not in circulation resides. The Reserve Pool is used to ensure that the value of stable credit stays the same relative to the pegged fiat currency.
Rebalancing manages the flow of collateral between the Collateral Pool and the Reserve Pool. When the collateral value in the Collateral Pool is not enough to maintain the 1:1 value to outstanding stable credit, a rebalancing operation will transfer collateral in the Reserve Pool to the Collateral Pool. This process creates a balance and ensures that the Collateral Pool has a sufficient amount of collateral when users decide to redeem stable credit.