# 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.

<figure><img src="https://3381100491-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FZOzQaoopNKdgkYJmuRPt%2Fuploads%2Feds61WP1xoAiykqjRZRX%2FIMAGE%202025-09-02%2012_57_01.jpg?alt=media&#x26;token=f8dfc935-2eeb-4b29-a44e-b2cdfac5b758" alt=""><figcaption><p>UNIT Logo</p></figcaption></figure>

### 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.<br>


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