> ## Documentation Index
> Fetch the complete documentation index at: https://docs.hylo.so/llms.txt
> Use this file to discover all available pages before exploring further.

# Core Mechanism

> Understanding the basic equations behind Hylo.

At its core, Hylo is a decentralized stablecoin protocol supporting leveraged trades against its collateral. Unlike traditional stablecoins that depend on a single issuer or reserve asset, Hylo spreads its backing across multiple independent collateral pools including SOL LSTs, BTC, and USDC, leaving no single point of failure.

The core challenge in crypto-backed stablecoin design is hedging the underlying collateral volatility. Hylo achieves this delta-neutral positioning through a simple core equation which splits one asset into two synthetic components:

1. **Leverage Token (xASSET)**: A leveraged derivative absorbing the entire price exposure of the underlying asset.
2. **Virtual Stablecoin (vUSD)**: A dollar-pegged stablecoin with a value of exactly \$1.

<Note>
  **vUSD** are internal accounting units within Hylo's exchange program. They are not tradeable tokens. Users interact only with **hyUSD**, **xASSETs**, and collateral.
</Note>

At any time, the total value locked (TVL) for the underlying asset must equate to the sum of its **vUSD** and **xASSET** market caps.

$$
\text{ASSET TVL} = \text{vUSD Supply} \cdot \text{\$1} + \text{xASSET Supply} \cdot \text{xASSET Price}
$$

The **xASSET Price** is [dynamically calculated](#pricing-xasset-tokens). As TVL fluctuates with the underlying asset's market price, the xASSET component absorbs all price movement, creating structural leverage while protecting the \$1 peg on **vUSD**.

See [Multi-Asset Architecture](/protocol-overview/multi-asset-architecture) for how individual pool invariants combine to back **hyUSD**.