> ## 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.

# xASSETs

> Pricing, leverage dynamics, and risk characteristics of Hylo's leverage tokens.

**xASSETs** are Hylo's liquidation-resistant leverage tokens. Each **xASSET** absorbs the full price exposure of its underlying collateral pool, allowing the paired **vUSD** to maintain its \$1 peg. By holding an **xASSET**, you get amplified exposure with the protocol handling all mechanics automatically.

## Pricing

The price of any **xASSET** is calculated from the variable reserve, the excess value not backing the virtual stablecoin:

$$
\text{xASSET Price} = \frac{\text{ASSET TVL} - \text{vUSD Supply}}{\text{xASSET Supply}}
$$

As the underlying asset appreciates, the **xASSET** price increases with effective leverage. If the asset price drops, the **xASSET** absorbs the loss, maintaining the **vUSD** peg.

<Accordion title="Example: xSOL Price Adjustment">
  1. **Initial Scenario**

  1 SOL worth \$100 in the reserve. This backs 50 vUSD<sub>SOL</sub> (worth \$50). The remaining \$50 is allocated to 50 xSOL tokens, each worth \$1.

  2. **SOL Price Increases**

  SOL doubles to \$200. The 50 vUSD<sub>SOL</sub> still represent \$50. This leaves \$150 for xSOL. Each token's value increases to \$3, a 3x gain absorbing SOL's positive movement.

  3. **SOL Price Drops**

  SOL falls to \$75. The 50 vUSD<sub>SOL</sub> still represent \$50. This leaves \$25 for xSOL. Each token drops to \$0.50, absorbing the negative movement.

  This mechanism applies identically to xBTC/vUSD<sub>BTC</sub> and any future asset pairs.
</Accordion>

<Frame>
  <img src="https://mintcdn.com/hylo/VbP8KOSnAwWe_lMh/images/collateral-volatility-absorption.png?fit=max&auto=format&n=VbP8KOSnAwWe_lMh&q=85&s=550b58f9b690ed45a4ab9a1cbbee062b" alt="Collateral Volatility Absorption Schema" width="4320" height="2523" data-path="images/collateral-volatility-absorption.png" />
</Frame>

## Effective Leverage

Effective leverage reflects an **xASSET** token's amplified exposure to its underlying asset at a point in time:

$$
\text{xASSET Leverage} = \frac{\text{ASSET TVL}}{\text{xASSET Market Cap}}
$$

Leverage fluctuates dynamically with protocol activity:

* **Increases** when **vUSD** is minted or **xASSET** is redeemed
* **Decreases** when **vUSD** is burned or **xASSET** is minted

Each **xASSET-vUSD** pair targets a collateral ratio of **150%**, implying structural leverage at **3x** in normal conditions. As leverage diverges from the target, the protocol uses [dynamic routing](./dynamic-collateral-routing) and [collateral rebalancing](./collateral-rebalancing) to guide it back.

<Accordion title="Example: xSOL Leverage Dynamics">
  1. **Initial Scenario**

  1 SOL worth \$100 in the reserve backs \$50 of vUSD<sub>SOL</sub> and \$50 of xSOL. Effective leverage is 2x.

  2. **After vUSD<sub>SOL</sub> Minting**

  An additional \$50 of vUSD<sub>SOL</sub> is minted (adding 0.5 SOL). Total reserve is \$150, xSOL market cap remains \$50. Effective leverage increases to 3x.

  3. **After vUSD<sub>SOL</sub> Redemption**

  \$25 of vUSD<sub>SOL</sub> is redeemed. Total reserve decreases to \$75, xSOL market cap still \$50. Effective leverage reduces to 1.5x.

  The same dynamics apply to xBTC and any future **xASSET** tokens.
</Accordion>

<Frame>
  <img src="https://mintcdn.com/hylo/VbP8KOSnAwWe_lMh/images/effective-leverage-curve.png?fit=max&auto=format&n=VbP8KOSnAwWe_lMh&q=85&s=c110e25df55b9056f63d2fa0762f536e" alt="Effective Leverage vs Fraction of TVL in xASSET" width="4320" height="2523" data-path="images/effective-leverage-curve.png" />
</Frame>

## xSOL: Free Leverage

xSOL benefits from the SOL pool's staking yield. Since LSTs generate native staking rewards, this yield flows to the protocol and no cost is charged to xSOL holders. Leverage is effectively free from ongoing costs besides the forfeited yield.

## xBTC: Borrow Rate Leverage

BTC doesn't generate native yield. As such the protocol exacts a configurable **borrow rate** on the BTC pool, paid by xBTC holders through gradual NAV reduction. See [multi-asset-architecture](/protocol-overview/multi-asset-architecture) for details on the borrow rate mechanism.

## Fee Structure

**xASSET** minting and redemption are each subject to a flat, configurable fee per pool. In extreme market conditions, fees may be temporarily adjusted for risk management purposes to incentivize healthy protocol behavior. See [risk-management](/protocol-overview/risk-management) for details.

## Risk: Volatility Decay

<Warning>
  Volatility decay causes leveraged tokens to lose value over time in sideways markets. When holding an **xASSET** through multiple rebalancing cycles, the break-even price of a user's position may increase.
</Warning>

**xASSET** value is path-dependent. Large price swings in both directions erode value because leverage amplifies both gains and losses.

**Example:**

1. SOL is at \$100, xSOL is at \$100 with 2x leverage
2. SOL drops 20% to \$80; xSOL drops 40% to \$60
3. SOL recovers back to \$100, but xSOL only recovers to \$90, not \$100

SOL returned to its starting price, yet xSOL lost \$10. This is volatility decay: each rebalancing cycle chips away at the token's value, even if the underlying asset ends up where it started.