# Reserve Fund
The reserve fund is an onchain insurance mechanism that protects USX from potential losses. The protocol allocates 50% of all yield fees (5% of the 10% fee) to build this fund. It's seeded with $5 million worth of SCR tokens and designed to maintain a minimum 2% coverage ratio of all deployed principal with no maximum cap.
### What Is the Reserve Fund?
The reserve fund is a dedicated smart contract (onchain) that accumulates capital dedicated exclusively to protocol protection. It covers potential losses from:
* Smart contract vulnerabilities in partner protocols
* Market disruptions or yield volatility
* Emergency situations where user capital needs protection
Think of it as an insurance pool funded by protocol fees rather than users.
### Reserve Fund Mechanics
#### Funding Source
The reserve fund is funded from the 10% protocol fee:
* **5%** of collected fees → Reserve fund
* **5%** of collected fees → Warchest (operations)
**Example:** If the protocol generates $1M in yield:
* $100k protocol fee collected
* $50k → Reserve fund
* $50k → Warchest
Over time, the reserve fund grows as strategies generate positive returns.
#### Initial Capitalization
* **$5 million worth of SCR tokens** seed the fund at launch
* These provide immediate protection while fee revenue builds the fund
#### Coverage Target
* **Minimum coverage:** 2% of all deployed principal
* If $100M is deployed in strategies, minimum reserve = $2M
* If $1B is deployed, minimum reserve = $20M
* **No maximum limit,** i.e, the fund can grow indefinitely
* The community will be notified in advance of any changes to coverage targets
### How the Reserve Fund Protects You
#### Protection Mechanisms
1. **Loss absorption:** If a partner protocol fails and causes losses, the reserve fund covers them
2. **Stability maintenance:** Ensures USX peg stability by absorbing temporary market shocks
3. **User capital preservation:** Your principal is protected by having dedicated insurance capital available
4. **Transparent deployment:** All fund capital is visible onchain at all times
#### When the Reserve Fund Is Used
The reserve fund may be deployed if:
* A partner protocol experiences a critical vulnerability
* Yield strategy losses exceed acceptable risk thresholds
* Market conditions trigger emergency conditions
The fund is NOT used for:
* Covering unstaking fees or normal transaction losses
* Funding operations (that's the warchest)
* Personal user losses from market volatility
### Reserve Fund Contract Details
**Onchain address (Scroll):** [`0xD09e956353Fc641792a0F1a7d748773358848F65`](https://scrollscan.com/address/0xD09e956353Fc641792a0F1a7d748773358848F65)
You can view:
* Current reserve balance
* Capital allocation over time
* Real-time fund growth from fee revenue
All reserve fund activities are transparent and auditable onchain.
#### Community Oversight
* The community will be **notified in advance** of any changes to reserve fund allocation
* Transparency is maintained through onchain visibility and regular reporting
#### Potential Future Changes
The reserve fund structure is designed to evolve:
* Coverage targets may be adjusted
* Fund size caps may be implemented (currently unlimited)
***
### Common Questions
**Q: What's the minimum reserve fund amount?**
A: 2% of deployed principal. If $1B is in yield strategies, the minimum is $20M.
**Q: Is there a maximum reserve fund size?**
A: No. The fund can grow indefinitely. There is currently no upper limit.
**Q: Where exactly is the reserve fund stored?**
A: Onchain in a dedicated smart contract at address [`0xD09e956353Fc641792a0F1a7d748773358848F65`](https://scrollscan.com/address/0xD09e956353Fc641792a0F1a7d748773358848F65) on Scroll.
**Q: Can the protocol use the reserve fund for other purposes?**
A: No. The reserve fund is dedicated exclusively to protocol stability and user protection. Operations funding comes from the warchest (the other 5% of fees).
**Q: How fast will the reserve fund grow?**
A: Growth depends on yield generation. Example: If $100M is deployed generating 10% yield, $50k per month goes to reserves. With larger deployments or higher yields, growth accelerates.
**Q: Can I withdraw from the reserve fund?**
A: No. The reserve fund is a protocol-level mechanism, not a user account. It only deploys to protect the protocol if needed.
**Q: Will the reserve fund coverage target ever increase?**
A: The community will be notified before any changes. Currently targeting 2% minimum coverage.
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