> For the complete documentation index, see [llms.txt](https://docs.wandfi.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.wandfi.io/products/collateral-vault/vault/aar-asset-adequacy-ratio.md). # AAR--Asset Adequacy Ratio AAR--Asset Adequacy Ratio signifies the capability of the protocol vault to cover the USB debt. It is used to assess the vault's health. Below is the calculation for AAR, taking the ETH vault as an example. *** ## Calculation of AAR The AAR for ETH vault is calculated as follows: $$ AAR\_{eth} = \frac{M\_{ETH} \times P\_{eth}}{M\_{USB-ETH}} \times 100% $$ Where: * $$M\_{ETH}$$ is the amount of ETH in the vault. * $$P\_{eth}$$ is the current price of ETH, obtained from the oracle. * $$M\_{USB-ETH}$$ is the amount of USB minted from the ETH vault. A negative correlation exists between the AAR and the proportion of USB within the protocol vault:

Figure : Corresponding relationship between the AAR and Proportions of USB

*** ## Thresholds of AAR * **AART**: Target AAR Target AAR represents the ideal state of the vault. * **AARS**: Safety AAR When below the Safety AAR, the pool's ability to repay USB debt is at risk. * **AARU**: Upper AAR When above the Upper AAR, the leverage ratio of Margin tokens becomes less attractive. The thresholds of AAR for each vault can be set individually. {% hint style="warning" %} S-Vault only has AARS. {% endhint %} ## AAR Rebalancing Unlike traditional lending protocols, Wand does not enforce liquidations. Instead, it introduces an Adjustment mode, [PTY--Price Trigger Yield](/products/collateral-vault/earn/pty-price-trigger-yield.md) and a [Discount Offer](/products/collateral-vault/discount-offer.md) mechanism to dynamically adjust the AAR. This allows anyone to participate and potentially earn arbitrage profits, ensuring the Vault's health.