> For the complete documentation index, see [llms.txt](https://leveracc.gitbook.io/leveracc-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://leveracc.gitbook.io/leveracc-docs/how-it-works/risk-management.md).

# Risk Management

How LeverAcc protects funders: the coverage-ratio health ladder, exchange-side system stop-loss, pre-trade checks and protocol-level protections.

LeverAcc protects funders by watching every borrowing account and acting before an account's value falls below its debt. Traders risk only their own capital.

## Health ladder

Each borrowing account has a **coverage ratio**: account value divided by debt (principal + interest). The risk engine reviews accounts more often as they get closer to their debt.

| Coverage | Level    | What happens                                                                                                     |
| -------- | -------- | ---------------------------------------------------------------------------------------------------------------- |
| > 1.167  | Safe     | Normal trading                                                                                                   |
| ≤ 1.167  | L1       | New risk-increasing orders are gated                                                                             |
| ≤ 1.125  | L2       | De-risking begins                                                                                                |
| ≤ 1.075  | Warning  | Reviewed every minute                                                                                            |
| ≤ 1.05   | Danger   | Positions reduced by 65% (reduce-only)                                                                           |
| ≤ 1.025  | Critical | All positions closed, execution access revoked, funds returned and debt settled (interest first, then principal) |

Thresholds can only be tightened, never loosened, by configuration.

## Exchange-side system stop-loss

Polling is never fast enough on its own. For every borrowing position, LeverAcc keeps a **reduce-only stop-loss order resting on Hyperliquid itself**. It covers gaps between checks, RPC congestion or service downtime. If any system stop-loss triggers, the account exits all positions. The stop price is based on the account's own capital (excluding unrealized profit) and accounts for execution slippage, using the less favourable of mid and mark price in fast markets.

## Pre-trade checks

* Isolated-margin orders that would open straight into the Danger zone are rejected, with the maximum allowed leverage returned.
* Orders with a borrow outstanding go through the same health gates.

## Protocol-level protections

* **Per-account and per-project borrow caps**, set by governance.
* **Vault liquidity buffer** and pause switches for borrowing, supply and redemptions.
* **Frozen mode** and per-account withdrawal restriction for emergencies.
* **Fail-closed reads**: if the contracts cannot get a trustworthy reading of HyperCore state, risky actions are refused.
* **Bad-debt handling**: if a close-out still leaves a shortfall, it is written off against the vault and any later recovery goes back to the vault.