# Peg Stability & Solvency Risk

The primary risk for any dollar-denominated on-chain asset is deviation from its intended value. Peg instability can arise not only from outright insolvency, but from **market perception of redemption risk**, delayed settlement, or uncertainty around the collateral backing. Even when collateral is fundamentally sound, short-term dislocations can occur if markets doubt whether redemption will be orderly under stress.

#### Why this risk exists in RWAs

Unlike crypto-native collateral, real-world assets introduce:

* Settlement timelines
* Issuer-level redemption mechanics
* Legal and operational dependencies

These factors can create *temporary uncertainty*, even if the underlying assets are high quality.

#### How rwaUSD mitigates this

**First, through collateral selection.**\
rwaUSD is intentionally restricted to **highly liquid, near-cash RWAs**, such as short-duration U.S. Treasury instruments and highly liquid tokenized gold. These are assets with deep global markets measured in **trillions of dollars** and observable pricing under stress.

**Second, through conservative solvency parameters.**\
Mint-to-value ratios are set meaningfully below 100% (illustratively in the \~70–85% range for liquid assets), ensuring over-collateralization even during adverse price moves. These buffers are calibrated for stress, not normal conditions.

**Third, through insurance as a backstop, not a crutch.**\
rwaUSD is designed to incorporate an insurance framework underwritten by **Lloyd’s of London**, intended to cover defined adverse scenarios affecting eligible collateral, including certain de-pegging, operational, or fraud-related events, subject to policy terms. Critically, insurance is treated as **supplemental protection**, not a single point of dependency. rwaUSD remains solvent without insurance; insurance exists to absorb tail risk and reinforce confidence during stress.