# Collateral Ratio

**The Collateral Ratio**is the ratio in which the stablecoins and utility tokens are required to create the fractional-algorithmic stablecoin. For tAsset, it is the ratio between KUSD and TWX. A collateral ratio of 100% means that the user needs 100% worth of KUSD and 0% worth of TWX to mint tAsset, while a collateral ratio of 69% means that the user needs 69% worth of KUSD and 31% of TWX to create tAssets.

The general formula of calculating the proportion of KUSD is from this equation:

$tAsset=P_{KUSD}\times KUSD + P_{TWX}\times TWX$

$(1-C_r)( P_{KUSD}\times KUSD)= C_r(P_{TWX}\times TWX)$

Which reads:

*Amount of tAssets is the sum of KUSD values and TWX values where the proportion of KUSD value to TWX value is the Collateral Ratio.*

**Example:**

At a Collateral Ratio of 60%, given that KUSD price is $1 and TWX price is $2, a user wants mint $100 worth of tXXX (a tAsset). The values can be substituted in the formula as follows:

$100 = 1 \times KUSD + 2 \times TWX$

$0.4(1\times KUSD) = 0.6(2\times TWX)$

After solving the system of equations, the user will need to supply 60 KUSD and 20 TWX (this example excludes the minting fees for clarification).

The Collateral Ratio might increase/decrease by 0.25% every hour by taking the price of all tAssets as well as other factors (to be described below) into account. Eventually, the Collateral Ratio will reach the equilibrium at each moment in time that signifies the balance between the stablecoin and utility tokens, at which the Collateral Ratio will not change.

To make sure that the Collateral Ratio reflects the situation of tAssets, “Growth Rate” is also considered to dynamically adjust the Collateral Ratio. The Growth Rate is calculated by the ratio of the total worth of TWX across all liquidity pools that has TWX to the total worth of circulating tAssets in the ecosystem. A higher growth rate implies that TWX is less volatile, which means less price impact while selling TWX, as well as indicating that more redemption could be made without having a high impact on the tAssets itself.

Simplified example below shows the relationship beginning with an imaginary tAssets price of $1,000 and Collateral Ratio of 0.9 (not to scale). There are other factors that affect the Collateral Ratio.

Simplified example of relationship between the price of KUSD and Collateral Ratio.

Last modified 1yr ago