Collateral Rebalancing

Hylo opens direct swap routes between volatile collateral and USDC when a pool’s collateral ratio diverges significantly from the targeted 150%. These routes allow the protocol to harness market forces to rebalance the leverage.

​

Rebalancing Zones

Each volatile collateral pool (e.g. SOL, BTC) has two rebalancing zones:

• Sell Zone: at low CR, the protocol sells collateral for USDC to derisk
• Buy Zone: at high CR, the protocol buys more collateral with USDC

The USDC pool acts as a rebalancing buffer, providing liquidity on the other side of all collateral sells and buys across volatile pools. The sell and buy zones each split into an inner and outer band that govern how aggressively the protocol prices each route. See Rebalance Zones for the full six-zone model.

​

Sell Zone

When a pool’s CR drops into the sell zone, the protocol opens an ASSET → USDC route. This sells collateral from the stressed pool and moves its backing into USDC, de-leveraging the xASSET and raising the pool’s CR toward 135%. The amount of collateral available for sale is capped to avoid overshooting past the sell zone inner bound. The zones are asymmetric: the sell-side pricing bands span a wider CR range (135% down to 100%) than the buy-side band (165% to 175%), because de-risking under stress demands a more graduated response.

​

Buy Zone

When a pool’s CR rises into the buy zone, the protocol opens a USDC → ASSET route for arbitrageurs. This deploys USDC reserves to purchase more collateral, simultaneously re-leveraging the xASSET and bringing the pool’s CR down toward 165%. The amount of buyable collateral is similarly capped to prevent overshooting. See Hylo Equations for the max sellable and buyable formulas.

​

Rebalance Pricing

Rebalance pricing applies a percentage spread to the oracle spot price that scales with how much the pool needs the flow:

• Near the inner bound (CR close to target), the protocol rebalances at a profit, selling collateral above spot or buying below it, since the pool barely needs the flow
• At a crossover point partway through the zone, the protocol rebalances at break-even, exactly at oracle spot: no profit, no subsidy
• At the outer bound (pool most stressed), the protocol rebalances at a subsidy (a discount on collateral in the sell zone, a premium in the buy zone), paying counterparties to provide the flow it now urgently needs
• Beyond the outer bound, the spread clamps flat; beyond the inner bound, the route deactivates

Both endpoint percentages are configurable per asset, so each pool is tuned to its own volatility. Because the spread is a fixed schedule rather than a function of live market data, pricing stays deterministic.

​

Profit and Loss Settlement

Every rebalance settles its profit or subsidy against the Earn Pool by minting or burning hyUSD:

• A rebalance executed at a profit mints hyUSD into the Earn Pool
• A rebalance executed at a subsidy burns hyUSD from the Earn Pool

The Earn Pool therefore absorbs the net P&L of all rebalancing activity: profitable rebalances near the inner bound accrue value to depositors, while subsidized rebalances under stress draw it down, the cost of de-risking the system.

​

Virtual Stablecoin Accounting

Rebalancing routes adjust the virtual stablecoin supply across pools:

• Sell (ASSET → USDC): burns vUSD on the volatile pair, mints vUSD on the USDC pair
• Buy (USDC → ASSET): burns vUSD on the USDC pair, mints vUSD on the volatile pair

This ensures hyUSD’s total backing remains consistent: collateral moves between pools, but the aggregate virtual stablecoin supply stays in balance.