Collateral Management Introduction
Synthetic assets created by users on youves are backed by dynamically managed collateral. At inception of a vault, the value of the required collateral is a larger than the value of the minted synthetic assets, in other words the vault is over-collateralized. The collateralization ratio is chosen in such a way that it is unlikely that sudden drops in the price of the collateral units lead to the value of the collateral being at or below the nominal value of the minted youves tracker tokens in a vault before action can be taken.
If the collateralization ratio of a vault falls to or below a defined emergency level, then the vault becomes available for a step in by a third party. In this case, the party stepping in will reinstate the collateral ratio by posting and burning youves tracker tokens and it will receive a step in bonus paid out of the excess collateral of the vault.