# Philosophy UNIT is designed to be a BTC-backed Collateralised Debt Position (CDP), programmed to be soft-pegged to the USD at 1.01 to 1.04 UNIT per USD before transaction costs, to finance responsible lending and leverage. At its core, UNIT offers conservative on-chain leverage to borrowers, with a targeted collateralisation ratio of 135 to 160 percent at all times. Initially, these UNIT-tokenised loans will carry zero percent interest, a one percent Issuance Fee, and a variable Liquidation Fee. DUCAT token holders will control these parameters, and introduce new ones, through the DUCAT governance process. We chose a 135 to 160 percent collateralisation ratio for UNIT to balance BTC’s historical 10-minute volatility (roughly the time of a Bitcoin block) with capital efficiency. Exogenous collateralisation is the only market-credible stablecoin risk structure. Every stablecoin and stablecoin-like derivative whose risk model has held up under stress is either exogenously overcollateralised (their collateral comes from a token with a much larger market cap that the stablecoin protocol has no or minimal influence over) or, in a few CDP cases, very heavily endogenously overcollateralised, with tight controls on debt origination.

### Price Stability Our stability mechanism relies on Liquidation Auctions to recapitalise distressed vaults. This process will be executed in a decentralised manner, with liquidators incentivised by strong returns on invested capital. Our priority is ensuring that all UNIT remains at least 135% collateralised by BTC at all times. As long as UNIT is consistently collateralised well above 100%, even in periods of extreme market stress, market forces will maintain the peg. Borrowers will be strongly motivated to repay their UNIT debts whenever UNIT trades at a discount to $1.