> For the complete documentation index, see [llms.txt](https://docs.usance.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.usance.xyz/understand-it/how-it-works.md). # How Usance works Everything Usance does follows one chain: **evidence → Passport → recognised value → capacity**, governed by a deterministic risk policy. Each step is inspectable, and each number cites the step before it. ## 1. Evidence For a supported asset, Usance fetches the issuer's own public filing, hashes it so the exact document is pinned, and extracts a structured set of claims from it. Two independent extraction paths are run where possible. If only one produces a reading, the resulting Passport is marked **single-source** and capped by policy rather than trusted at full value. ## 2. The Passport The extracted claims are committed on-chain as a **Passport**, a versioned, hash-anchored record of what the asset legally is: issuer, rights, custody, redemption window, transfer rules, and how corporate actions are handled. Passports are versioned because filings change, so a new filing produces a new version rather than silently overwriting the old one. ## 3. Recognised value Market value is what an asset is quoted at. **Recognised value** is what Usance is willing to lend against, and it is deliberately lower. Starting from market value, Usance applies a set of named haircuts in a fixed order, then floors the result at the worse of a **stressed-exit** estimate (what the position would realise if it had to be sold quickly) and, where one exists, a redemption floor. The gap between market and recognised value is **not a fee**. Nobody takes it. It stays in your deposit and you can withdraw it. Usance simply will not *lend* against the part of the value it could not defend under stress. Every haircut is shown, and each asset's row states which bound (policy or stressed size) was the binding one. ## 4. Capacity and borrowing Your **borrowing capacity** is derived from recognised value. Two limits are always kept separate, because they have opposite remedies: * **What your collateral supports.** Raised by depositing more collateral. * **What lenders can currently fund.** Raised only when lenders supply more liquidity, never by adding collateral. Borrowing draws settlement liquidity against your recognised value while your assets stay where they are. Repaying is always available, in every account state, because it reduces risk. ## 5. Risk epochs Every quote Usance produces is stamped with a **risk epoch**, the version of the policy and inputs it was computed under. If policy or the evidence moves between the moment you were quoted and the moment you sign, the transaction is **refused** rather than executed under rules you never saw. This is why a stale preview never silently goes through at the wrong number. ## 6. The account status ladder An account's status is **recomputed from live inputs on every read**. It is never a stored flag that a background job might leave stale. The ladder, in plain terms: | Status | What it means | | --------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | | **Normal** | Nothing restricted. | | **No new risk** | New borrowing is paused (recognised value fell, or an input became untrustworthy). Repay, add collateral, and withdraw-within-limit stay open. | | **Reduce only** | Withdrawal is also paused. Repaying or adding collateral restores it. | | **Margin call** | Debt is above the maintenance limit, and a liquidator may take part of the collateral. You can stop it by curing the shortfall. | | **Liquidating** | Collateral is being sold to reduce the debt. | ## 7. Liquidation When an account is below its maintenance requirement, a liquidator may repay part of the debt in exchange for a portion of the collateral. Usance takes the part the breach requires and leaves the rest. Liquidation is **partial and priced**, ranked on what a route is expected to actually recover (fees, latency, and the chance it does not complete at all) instead of the price it quotes. Because seizing collateral removes borrowing capacity along with debt, a single round often reduces the position without fully curing it, and the receipt says so rather than implying more. Every one of these steps writes a public receipt. See [Security and authority](/understand-it/security.md) for who is allowed to act, and [Networks and what is live](/understand-it/networks.md) for what is executable today. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.usance.xyz/understand-it/how-it-works.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.