> ## 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.

# Risk Management

> Multi-tiered stability mechanisms employed by Hylo to ensure peg safety.

Hylo manages risk at the individual pool level. Each collateral pool (e.g. SOL, BTC) has its own **collateral ratio (CR)**, the backing strength of its virtual stablecoin, and its own independent stability mechanisms. This page is the map; each mechanism links to its full treatment.

$$
\text{vASSET CR} = \frac{\text{ASSET TVL}}{\text{vASSET Supply}}
$$

## Rebalance Zones

A pool's CR places it in one of six **rebalance zones**. The protocol targets a CR around **150%**, the center of the healthy Neutral band; the further CR drifts from it, the more aggressively the protocol intervenes.

| CR Range    | Zone         | Pool Status                       |
| ----------- | ------------ | --------------------------------- |
| ≥ 175%      | Buy Zone 2   | Buying collateral (max premium)   |
| 165% – 175% | Buy Zone 1   | Buying collateral                 |
| 135% – 165% | Neutral      | Healthy (target \~150%)           |
| 120% – 135% | Sell Zone 1  | Selling collateral                |
| 100% – 120% | Sell Zone 2  | Selling collateral (max discount) |
| \< 100%     | Destabilized | Loss absorption                   |

The boundary rationale is derived in [Value at Risk Analysis](/technical-addendum/value-at-risk-analysis); the canonical zone definitions live in [Hylo Equations](/technical-addendum/hylo-equations#rebalance-zones).

## Multi-Tiered Stability

As CR leaves the Neutral band, Hylo escalates through complementary mechanisms, with market-incentivized rebalancing first, then protective fees, and finally the Earn Pool backstop:

| Mechanism                                                                                                   | Active In        | Purpose                                                                |
| ----------------------------------------------------------------------------------------------------------- | ---------------- | ---------------------------------------------------------------------- |
| [Dynamic collateral routing](./dynamic-collateral-routing)                                                  | Neutral          | Fee curves direct **hyUSD** inflows to higher-CR pools                 |
| [Collateral rebalancing](./collateral-rebalancing)                                                          | Sell & Buy zones | Subsidized swap routes pull CR back toward Neutral                     |
| [xASSET fee controls](/technical-addendum/additional-risk-management#anti-destabilization-fees)             | Sell zones       | Deter destabilizing redemptions; reward restorative mints              |
| hyUSD minting block                                                                                         | Outside Neutral  | Blocks mints that would push CR out of the healthy band                |
| [Earn Pool loss absorption](/technical-addendum/additional-risk-management#earn-pool-as-first-loss-capital) | Destabilized     | Burns Earn Pool hyUSD to retire unbacked supply and restore CR to 100% |

## Risk Isolation

Because every pool has its own CR, zones, and fees, stress stays local: a shock to one collateral asset is worked out by that pool alone, without dragging healthy pools into protective mode. **hyUSD stays backed** because its collateral is the aggregate of all pools: a healthy pool offsets a stressed one. See [Multi-Pool Risk Isolation](/technical-addendum/additional-risk-management#multi-pool-risk-isolation) for detail.

## Aggregate System Health

While each pool operates independently, **hyUSD**'s overall health depends on the aggregate:

$$
\text{System CR} = \frac{\sum(\text{Pool TVLs})}{\sum(\text{vASSET Supplies})}
$$

**hyUSD** remains fully backed as long as total backing exceeds total vASSET supply.