> ## 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.

# Value-at-Risk Analysis

> Understanding how Hylo V2 uses VaR analysis to set per-asset risk thresholds

Hylo employs [**Value at Risk (VaR)**](https://www.investopedia.com/terms/v/var.asp) 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.

## Multi-Asset VaR Framework

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

| Asset | Historical Volatility | 1-Day 99.9% VaR | CR Target |
| ----- | --------------------- | --------------- | --------- |
| SOL   | Higher                | -32.95%         | 150%      |
| BTC   | Lower                 | \~-25%          | 150%      |

## SOL Pool VaR Analysis

### Data and Parameters

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

### 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 vUSD<sub>SOL</sub> 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.

### SOL VaR Trend

The analysis shows decreasing VaR for SOL over time:

| Period                   | 99.9% 1-Day VaR |
| ------------------------ | --------------- |
| Full dataset (2020-2026) | -32.95%         |
| Last 2 years             | -28.18%         |
| Last year                | -27.55%         |

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.

## BTC Pool VaR Analysis

### Data and Parameters

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

### Results

BTC historically exhibits lower daily volatility than SOL:

| Metric          | SOL     | BTC    |
| --------------- | ------- | ------ |
| 99.9% 1-Day VaR | -32.95% | \~-25% |

### 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)

## Per-Pool Target Rationale

### 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

### Asset-Specific Considerations

| Asset | Unique Risk Factors                                        |
| ----- | ---------------------------------------------------------- |
| SOL   | Network-specific events, validator risks, MEV dynamics     |
| BTC   | Wrapped asset custody, bridge security, oracle reliability |

## 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

### 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

## 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 (vUSD<sub>SOL</sub> CR, vUSD<sub>BTC</sub> CR). See [Rebalance Zones](/technical-addendum/hylo-equations#rebalance-zones) for the full zone table.

## 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

### Evaluation Criteria

| Metric             | Requirement                     |
| ------------------ | ------------------------------- |
| 1-Day 99.9% VaR    | \< -40% (manageable volatility) |
| Data availability  | Sufficient historical record    |
| Liquidity          | Adequate for operations         |
| Oracle reliability | Multiple sources available      |