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Hylo employs Value at Risk (VaR) analysis to set appropriate thresholds for its risk management metrics. VaR is a statistical technique used to measure and quantify the level of financial risk within each collateral pool over a specific time frame. In V2, VaR analysis is performed independently for each asset type, enabling tailored risk parameters.

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Multi-Asset VaR Framework

Each collateral pool has its own VaR profile based on the underlying asset’s volatility characteristics:

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SOL Pool VaR Analysis

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Data and Parameters

  • Data range: April 10, 2020, to 2026
  • Confidence level: 99.9% (representing a 0.1% probability event)
  • Time frame: 1 day

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Results

The analysis reveals a 99.9% VaR of -32.95% for a one-day price drop in SOL. Based on this, Hylo sets the vUSDSOL CR target at 150%. This target ensures the SOL pool can withstand a price drop corresponding to the 0.1% worst day in SOL’s history without requiring emergency action.

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SOL VaR Trend

The analysis shows decreasing VaR for SOL over time: This trend suggests a maturing market with potentially lower risk. However, Hylo maintains the 150% target based on full historical data for comprehensive risk coverage.

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BTC Pool VaR Analysis

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Data and Parameters

  • Data range: Historical BTC price data
  • Confidence level: 99.9%
  • Time frame: 1 day

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Results

BTC historically exhibits lower daily volatility than SOL:

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BTC CR Target

Despite BTC’s lower volatility profile, V2 uses the same 150% CR target for the BTC pool. This provides:
  1. Consistent user experience across all pools
  2. Conservative risk management for the new pool
  3. Buffer for wrapped BTC risks (custody, bridging)

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Per-Pool Target Rationale

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Why 150% for All Pools?

The 150% target aims to:
  1. Safeguard against rare events where destabilization probability exceeds 0.1%
  2. Provide reaction time before reaching dangerously low collateralization
  3. Maintain conservative stance given observed market behavior
  4. Keep CR within the Neutral band, so rebalancing routes engage well before hyUSD backing is affected
  5. Hold xASSET leverage in a reasonable range: CR and xASSET leverage move inversely, so a lower CR target would push the baseline leverage carried by xASSET holders higher than is ideal for the product

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Asset-Specific Considerations

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Independent Pool Risk

V2’s multi-pool architecture means:
  1. Isolated VaR - Each pool assessed independently
  2. No contagion - SOL crash doesn’t affect BTC pool CR
  3. Diversified backing - hyUSD benefits from uncorrelated assets

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Correlation Considerations

SOL and BTC are partially correlated but not perfectly:
  • During broad crypto selloffs, both may decline
  • Asset-specific events affect only one pool
  • Diversification provides some protection

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Rebalance Zone Thresholds

VaR analysis informs where each pool’s rebalance zones sit around the 150% target: as CR leaves the Neutral band, the protocol escalates from autonomous rebalancing to zone-based fees and, in the worst case, the Earn Pool backstop. These thresholds apply independently to each pool (vUSDSOL CR, vUSDBTC CR). See Rebalance Zones for the full zone table.

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Future Asset Evaluation

When adding new collateral pools, the VaR framework is applied:
  1. Gather historical data - Minimum 2 years preferred
  2. Calculate VaR metrics - 1-day at 99.9%
  3. Set CR target - Based on VaR results
  4. Monitor and adjust - Regular target reviews

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Evaluation Criteria