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Dynamic collateral routing is one of two mechanisms Hylo uses to rebalance xASSET-vUSD pairs toward their target collateral ratio, the other being collateral rebalancing. It is also the most capital-efficient as it requires no protocol incentives. Collateral routing simply steers user flows where they’re needed through dynamic fee curves that adjust automatically based on each pool’s collateral ratio.

High CR Pool

Low mint fee and high redeem fee. Attracts inflows, discourages outflows.

Low CR Pool

High mint fee and low redeem fee. Discourages inflows, attracts outflows.

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Routing Schema

xASSET collateral flows cannot be directed since users want leveraged exposure to a specific asset. However, hyUSD flows can be directed. When a user wants hyUSD they are not concerned with which collateral pool backs it. Hylo employs a dynamic fee system to effectively route hyUSD mints and redemptions to and from the most optimal pool. By making it cheaper to mint hyUSD from healthier pools, the protocol naturally directs collateral where it’s needed. Vice versa on the redemption side, the least healthy pool will surface the lowest fee. When other pools are unable to accept more collateral, the USDC pool wins the flow. The DEX router (e.g. Titan, Jupiter) evaluates the proposed fee from each available pool and selects the cheapest path. In this example, the SOL pool’s high CR yields the lowest fee, so the router swaps the user’s input token to SOL LSTs and mints hyUSD through that pool.
The DEX router selects the cheapest pool to mint hyUSD

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USDC Pool: Flat Fee

The USDC pool operates differently from standard collateral pools in that it acts as an overflow buffer for hyUSD demand. It applies a flat fee on both minting and redemption with no restrictions, becoming attractive when other pools cannot accept more collateral.

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Volatile Pools: Fee Curves

For volatile collateral pools (SOL, BTC), Hylo uses two independent piecewise fee curves, one for minting and one for redemption. Each curve maps a pool’s collateral ratio to a fee percentage.
CR Zone Map and Fee Curves

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Mint Fee Curve

The mint fee curve is active when CR is above the 150% target. As the pool’s CR rises, the minting fee decreases.
  • At the lower bound: fee is highest
  • As CR rises: fee decreases along the curve
  • Above the upper bound: fee approaches zero
If the pool’s CR falls below the curve’s lower bound, minting is blocked entirely. This means hyUSD cannot be minted from an over-leveraged pool.

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Redeem Fee Curve

The redeem fee curve spans a wider CR range and is always active. Redemptions are never blocked. As the pool’s CR rises, redemption fees increase.
  • At the lower bound: zero fee encouraging outflows from distressed pools
  • As CR rises: fee increases along the curve
  • Above the upper bound: fee clamps at maximum
The redeem curve creates a natural incentive. When one pool has a low CR, redemptions are nearly free. When a pool is healthy, redemptions are expensive, discouraging outflows.