# USV PegMechanism

## Over-collateralization

The value of collateral (JitoSOL) locked in the protocol always exceeds the value of issued USV tokens. New USV can only be minted when a higher amount of JitoSOL is converged, while all repaid USV will be burnt when a position is diverged or liquidated. As a result, the amount of locked JitoSOL will always exceed the amount of issued USV.

## Redemption

If the price of USV falls below $1, an arbitrage opportunity will arise, incentivizing users to trigger a redemption.

Redemption refers to the process of converting USV into JitoSOL at face value, with 1 USV being equivalent to USD$1; for every x USV redeemed, you receive x Dollars worth of JitoSOL in return.

Any users can redeem USV for JitoSOL anytime. However, it is important to note that a redemption fee will apply.

Positions are redeemed in ascending order of their collateralization ratio, meaning that the first position in the system with a collateral ratio >= 110% will be redeemed first. Hence, it is advised that users monitor their collateral ratio relative to other positions to avoid having their JitoSOL redeemed against.

## Dynamic borrowing fee

The borrowing fee adjusts dynamically based on the last redemption time. If there are more redemptions happening, indicating that USV is likely trading below 1 USD, the borrowing fee will increase, thusly discouraging borrowing.