❗Collateral Ratio (CR) System

In the Shield Protocol ecosystem, security and trust take center stage. To maintain stability for synthetic assets like BNBX, Shield Protocol employs a Collateral Ratio (CR) mechanism, ensuring every synthetic token is fully backed by BNB and safeguarded from market volatility.

What Is the Collateral Ratio System?

The Collateral Ratio (CR) measures how much BNB collateral is held relative to the BNBX tokens issued. By requiring adequate collateral for every synthetic token minted, the CR system protects both user investments and the overall health of the protocol.

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How the CR Works

1. Collateral Backing for BNBX

   • When you mint BNBX by depositing BNB, your BNB is locked in Shield Protocol’s vault.

   • This locked BNB backs the newly created BNBX, ensuring its pegged value remains reliable.

2. Dynamic Adjustments

   • The CR is actively adjusted (up or down by 0.2% each hour) based on a 60-minute TWAP (Time-Weighted Average Price) of BNB.

   • If the 60min-TWAP is over 1.005, the CR decreases by 0.2%.

   • If the 60min-TWAP is under 0.995, the CR increases by 0.2%.

   • This mechanism helps stabilize BNBX during periods of volatility and optimizes capital efficiency when markets are calm.

3. CR Range: 90% to 100%

   • The protocol targets a Collateral Ratio between 90% and 100%.

   • Minimum CR: 90%. Even in turbulent markets, the system never dips below 90% collateralization, preserving investor confidence and protecting against devaluation.

4. Redemption Process

   • When you redeem BNBX, the protocol returns the appropriate amount of BNB based on the current CR.

   • This ensures a smooth transition back to the base asset while keeping the protocol balanced and secure.

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Why the Collateral Ratio Matters

1. Stability for Synthetic Assets

   • A well-managed CR ensures BNBX remains pegged to BNB’s value, even when the market is on a rollercoaster.

   • Users can trade or hold BNBX with confidence, knowing it’s fully backed.

2. Investor Protection

   • Requiring sufficient collateral minimizes risks for anyone holding or trading BNBX.

   • The CR system acts like a safety net, cushioning the ecosystem from major market swings.

3. Efficient Capital Use

   • By letting the CR adapt between 90% and 100%, Shield Protocol finds a balance between robust collateralization and optimal capital efficiency.

   • During calmer periods, the CR can move toward 90%, freeing up capital for more productive use.

4. Confidence & Value Retention

   • Maintaining at least 90% collateral reassures users that their assets are protected.

   • A strong CR helps guard against downward price pressure, supporting Shield Protocol’s long-term sustainability.

5. Continuous Monitoring & Adjustments

   • The CR doesn’t remain static. Automated smart contract functions and the Shield team constantly track market conditions, making hourly CR tweaks as needed.

   • This proactive approach ensures the protocol quickly adapts to shifting markets, maintaining security and reliability for investors.

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The Bottom Line

Shield Protocol’s dynamic Collateral Ratio (CR) System is a cornerstone of its mission to create a secure, transparent, and flexible DeFi ecosystem. By locking adequate BNB, adjusting the CR hourly within a 90%–100% range, and never letting collateral dip below 90%, Shield Protocol protects users from extreme volatility and keeps BNBX stable. The result? A DeFi platform where investors can mint, trade, and redeem synthetic assets with confidence, knowing the value of their assets remains well-supported—even in unpredictable markets.