> For the complete documentation index, see [llms.txt](https://mortgagefi-docs.gitbook.io/mortgagefi-documentation/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://mortgagefi-docs.gitbook.io/mortgagefi-documentation/mortgagefi-ecosystem/self-balancing-protocol/how-the-system-balances.md).

# How the System Balances

1. Liquidity Provision:

* Earn depositors supply stablecoins, incentivized by high yields
* These stablecoins are used to purchase ERC20 tokens, creating liquidity for borrowers

2. Price Discovery:

* ERC20 sellers can sell tokens slightly above market rate
* The arbitrage opportunity attracts sellers, ensuring a steady supply of tokens
* Competition among sellers naturally stabilizes prices close to market rates

3. Borrowing Demand:

* Attractive loan terms drive demand from borrowers
* Borrowers' repayments in stablecoins flow back to Earn depositors

4. Yield Generation:

* Borrower repayments and fees generate yield for Earn depositors
* High yields attract more stablecoin deposits, completing the cycle


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