Collateral Management Introduction

Synthetic assets minteed by users on youves are backed by dynamically managed collateral. When someone first sets up a vault, they need to put up more money as collateral that us larger than the value of the synthetic assets they create. This means the vault is over-collateralized. The platform encourages users to pick a safe target collateral ratio on the frontend. This involves selecting a ratio that has a safety gap from the emergency collateral ratio. By doing so, the chances of the collateral value rapidly decreasing to a point where the vault's ratio falls below emergency levels are reduced. This gives enough room for users to take action to avoid liquidation.

If the collateralization ratio of a vault falls below a defined emergency level, then the vault becomes available for a step in by a third party. The party doing the step in will restore the collateral ratio up to the emergency collateral ratio level defined for the specific engine. They do this by posting and burning youves tracker tokens, and they will receive a step in bonus paid out of the excess collateral in the vault. In this sense, step-ins are partial liquidations of the posted collateral.