The 130% Floor
Below the floor, no new issuance is permitted.
Problem
What is the absolute minimum collateralization the protocol allows on outstanding szUSD?
Solution
130%. Below the floor, no new issuance is permitted.
Below the 130% ratio, no new issuance is permitted, and existing issuance is forced into the Layer 3 emergency facilities. The floor is in code, enforced at the issuance and reissuance layers, and cannot be lowered by governance.
130% is the floor, not the steady-state target. Steady-state target is 150%. The 20% gap is the buffer Layer 2 operates in.
Discussion
The floor is conservative deliberately. A 130% ratio leaves a meaningful margin for collateral price decline before the system's undercollateralization becomes severe. Combined with the Layer 4 dilutive backstop, the floor produces the upper bound on system loss in the worst case.
The combination of the cap (§ 4.2) and the floor is what makes the bounded-dilution proof in § 4.4 work. The cap bounds how much SZK dilution can do. The floor bounds how undercollateralized the system can be before Layer 4 fires. Together they bound the worst case.
See Also
- § 4.4 · The Bounded-Dilution Proof — the floor's role in the worst-case bound
- § 4.1 · The Five-Layer Ladder — how Layer 3 emergency facilities pick up below the floor