> For the complete documentation index, see [llms.txt](https://docs.smardex.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.smardex.io/ultimate-synthetic-delta-neutral/the-usdn-protocol/protocol-balance/imbalance-protections.md).

# Imbalance Protections

To ensure the stability of the [USDN protocol](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#usdn-protocol) and prevent significant imbalances, several protection mechanisms are activated when the imbalance between the [trading exposure](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#trading-exposure) of longs and the [vault](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#vault) balance exceeds certain thresholds. These protections include temporary restrictions on key user actions, such as [minting](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#mint) and [redeeming](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#redeem) the [USDN token](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#the-usdn-token), as well as opening or closing [long positions](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#long-position). In synergy with the [funding rate](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#funding-rate) and the [dip accumulator](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#dip-accumulator), these mechanisms ensure the continuous and automatic rebalancing of the USDN protocol in the event of prolonged imbalance.

### Dip Accumulator

The dip accumulator is a protection mechanism against sharp drops in long trading expo resulting from liquidations. See the [Dip Accumulator ](/ultimate-synthetic-delta-neutral/the-usdn-protocol/long-side/dip-accumulator.md)section for more details.

### Funding Rate

The funding rate serves as an incentive to add assets in the side of the protocol that is underrepresented or remove assets from the other side. See the [Funding Rate](/ultimate-synthetic-delta-neutral/the-usdn-protocol/protocol-balance/equilibrium-the-role-of-the-funding-rate.md) section for more details.

### Actions Restrictions

The illustration below shows the 4 main actions of the protocol.

<figure><img src="/files/BD1rqouv8EzIVmv7DG51" alt=""><figcaption></figcaption></figure>

Depending on the observed level of imbalance, some of these actions are forbidden. Two main thresholds are used to trigger these protective measures: a slight imbalance (e.g. 5%) and a significant imbalance (e.g. 6%).

## 1. If Trading Exposure of Longs > Vault Balance&#x20;

* **Slight imbalance:** When there is an excess of long positions compared to the vault balance, the protocol prevents any new opening of long positions, which would exacerbate the imbalance.
* **Significant imbalance**: If the imbalance continues to grow beyond the second threshold, in addition to preventing new long positions, the protocol also suspends vault withdrawals. This prevents a liquidity outflow from the vault, which would further exacerbate the imbalance.

<figure><img src="/files/UbJDpebtbRChqZ2ydlQI" alt=""><figcaption></figcaption></figure>

## 2. If Vault Balance > Trading Exposure of Longs

* **Slight imbalance**: When there is an excess of assets in the vault, the minting of new USDN tokens is temporarily prevented, which would increase the imbalance.
* **Significant imbalance**: If the gap between the vault and the trading exposure of longs continues to increase, the closing of long positions is additionally restricted. By prohibiting the closing of long positions, we prevent the trading exposure from shrinking further, which would worsen the protocol's imbalance.

<figure><img src="/files/P2h1VkLCfxbwTEmwBekS" alt=""><figcaption></figcaption></figure>

These restrictions are temporary and last only as long as necessary for the protocol's imbalance to fall below the defined thresholds. As soon as the imbalance falls back below the thresholds, all operations become fully available again without limitations.

These measures are not designed to restrict users but to ensure the stability of the USDN protocol and create a healthy and sustainable on-chain environment for all participants. As the [total value locked](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#total-value-locked-tvl) (TVL) in the protocol evolves, these threshold values can get updated by the [governance](/ultimate-synthetic-delta-neutral/the-usdn-protocol/governance.md) to ensure that users don't get unnecessarily blocked and to optimize the security of the system.

### **In Case of Restrictions:**

Since multiple mechanisms are in place to proactively balance the protocol, these restrictions are activated only in extremely rare cases and solely to protect the system. Moreover, it is important to understand that when these restrictions occur, users who are "blocked" often benefit significantly:

* **If vault withdrawals are suspended:** It means there is a high demand for long positions, leading to a highly positive funding rate, which results in increased [yield](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#yield) for USDN token holders.
* **If closing long positions is restricted:** It indicates an excess of liquidity in the vault, causing the funding rate to become strongly negative, providing a boosted yield for long positions that remain open.

These protective measures help maintain a healthy and balanced protocol, ensuring a better experience for all users in the long run.


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