Zest Protocol creates economic security for LPs through a pool cover. Assets in pool cover serve as first-loss capital in case of a default in the pool. You can think of pool cover as the junior tranche of a given Zest pool.
Pool cover providers share in the Bitcoin yield accrued to the lending pool - which will naturally be higher than the yield generated by providing Bitcoin liquidity to the pool.
In the event of liquidation and collateral shortfall, the protocol will liquidate assets provided as pool cover in order to cover the difference between the value of the collateral and the loan balance.
The asset that’s used for pool cover will be xBTC - a wrapped Bitcoin on Stacks by Tokensoft and Anchorage.