> For the complete documentation index, see [llms.txt](https://docs.hermetica.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.hermetica.fi/usdh/risk-disclosures/collateral-risk.md). # Collateral Risk To mint USDh, clients have to deposit Bitcoin, which is the collateral that backs the delta-neutral derivatives position. This collateral needs to be kept safe and managed appropriately in order to ensure USDh's stability. This involves two primary risks. ### **Custody Risk** Even though the collateral that is deposited to Hermetica is held by established large-scale crypto custodians, the risk exists that these custodians become iliquid. This might be due to a hack or other malicious activity. #### **Mitigation** In order to mitigate this risk, Hermetica uses a variety of custody providers. In the event of a failure on the part of any single provider, the loss will be contained. ### **Collateral Management Risk** Hermetica's operational complexity comes from the fact that it has to make sure that its USDh liability is fully hedged. An operational failure may lead to an uncovered positions and hence lead to a value loss for USDh. #### **Mitigation** To minimize this possibility, our risk engine runs risk checks every 100 milliseconds and reconciles our liability against our assets. Hermetica runs multiple risk engines in parallel across multiple geographic locations and cloud providers in order mitigate the possibility of a third party failure. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.hermetica.fi/usdh/risk-disclosures/collateral-risk.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.