# Risks & Mitigants

USD.AI is a balance between risk mitigation in the pursuit of yield capture. By orienting risk mitigation towards asset productivity, USD.AI will facilitate growth by focusing on the asset underwriting process.

<table><thead><tr><th width="128.79296875">Risk Category</th><th>Mitigant</th><th>Details</th></tr></thead><tbody><tr><td>ECONOMIC</td><td>Equity Buffer</td><td>70-80% Loan-to-Value (LTV) ratio provides a safety margin against asset value fluctuations and default risks.</td></tr><tr><td>ECONOMIC</td><td>Debt Service Reserve Account</td><td>~3 months of peak debt service held in a restricted cash account (or in USDai directly) to cover potential ramp up delays, cash flow lumpiness of borrower. Structural protection to ensure borrower maintains healthy cash reserves</td></tr><tr><td>ECONOMIC</td><td>Amortization</td><td>Regular principal repayment schedule reduces exposure over time, with first successful implementation complete.</td></tr><tr><td>ECONOMIC</td><td>Queue Extractable Value</td><td>A market-based pricing mechanism for liquidity bottlenecks for each amortization loan repayment.</td></tr><tr><td>ECONOMIC</td><td>Value Insurance</td><td>Value insurance policy placed to provide insurance coverage over the life of the loan. In the event of default, GPUs are sold in the secondary market, if sale price is under the insured amount, insurer pays out the delta.</td></tr><tr><td>LEGAL</td><td>Bankruptcy Remote SPV</td><td>Clear legal structure secures asset ownership and collateral rights throughout the financing period, assets and contractual revenue split from parent corporate balance sheet prevents other creditors from attempting to claim rights to assets in event of default. </td></tr><tr><td>LEGAL</td><td>Onboarding Diligence</td><td>Thorough vetting of counterparties' financial status and compliance requirements before participation.</td></tr><tr><td>LEGAL</td><td>Software Oversight</td><td>Ongoing software oversight into machine usage, uptime and location</td></tr><tr><td>MODULAR</td><td>Underwriting Process</td><td>Comprehensive system including asset appraisal, default handling, and flexible amortization options.</td></tr><tr><td>MODULAR</td><td>Risk Incentive</td><td>Interest rates range based on cash flow qualities (ie, on demand rentals charged higher rate than contractual multi year offtake agreements). Higher yield compensates underwriter economic interests, which align with platform success.</td></tr><tr><td>MODULAR</td><td>Controls</td><td>Built-in safeguards include auction repurchase guarantees and robust appraisal systems.</td></tr><tr><td>TOKENOMIC</td><td>Governance Whitelist</td><td>Community oversight of loan terms and asset selection promotes long-term sustainability.</td></tr><tr><td>TOKENOMIC</td><td>Last line of defense</td><td>Token functions as ultimate risk buffer in case of major depeg, similar to Aave and Maker models.</td></tr></tbody></table>