> For the complete documentation index, see [llms.txt](https://docs.btcd.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.btcd.fi/feature-overviews/protocol-design/risk-management.md).

# Risk Management

The following describes key risk management features built into BTCD contracts to mitigate risk related to rebalancing. 

* Active Rebalancing Minimizes Impact: Rather than waiting for extreme price swings, rebalances are scheduled at regular intervals (e.g., every 24 hours) and triggered by significant collateral drift thresholds.
* Economic Efficiency Over Frequency: Small price moves need not prompt immediate trades—rebalances focus on economic benefit, not micro-managing every 5 % change.
* Natural Mint/Redeem Flows: User actions also restore balance: minting BTCD adds fresh collateral in both legs, while redemptions remove proportionate amounts, organically offsetting hedging imbalances.
* Hybrid Contract Usage: A bias toward inverse (BTC-margined) contracts reduces reliance on stablecoins for settlement, improving capital efficiency and lowering counterparty exposure.

Through this combination of delta-neutral hedges, automated rebalancing, and user-driven flows, BTCD maintains its 50 % BTC / 50 % USD peg with minimal drift, even amid rapid market movements.

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