# Price Stability Mechanism The protocol uses a risk tranching structure to maintain the price stability of AZND. This is achieved through the muBOND first loss credit tranche and the establishment of an Insurance Fund that we intend to fund with protocol fees over time ### **Loss Absorption via muBOND** * **First Loss Credit Tranche:** muBOND represents \~15% of total protocol TVL and is the first-loss capital in the system * **Mark-to-Market Protection:** if the underlying RWA Asset Pool experiences temporary price declines (e.g., from interest rate movements or credit spread widening), these losses are reflected in the NAV of muBOND, not AZND * **Preserving AZND Value:** AZND, as the senior tranche, retains its principal value unless portfolio losses exceed the entire muBOND capital layer * **Example:** * Portfolio declines by 5% due to market movements * Losses are absorbed entirely by muBOND NAV before AZND is impacted ### **Insurance Fund** * **Purpose:** acts as an additional capital buffer to cover potential shortfalls that exceed muBOND’s junior capital * Built over time using a portion of protocol fees * **Deployment:** may be used to offset redemption shortfalls, support liquidity during stress events, or stabilize NAV during extreme volatility --- # Agent Instructions: 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: ``` GET https://docs.mudigital.net/mechanics/price-stability-mechanism.md?ask= ``` The question should be specific, self-contained, and written in natural language. 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.