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

# Risk-Adjusted Credit Ratings

$USDu is minted exclusively against collateral derived from credit-rated lending markets. To ensure the protocol remains resilient and overcollateralized, all collateral is categorized into credit classes based on external credit ratings.

* The credit ratings are sourced from Credora, an established DeFi credit risk assessor backed by Standard & Poor and Coinbase.
* Collateral is divided into **Classes 1 to 6**, where Class 1 is the safest and Class 6 carries higher risk.
* Higher credit class collateral allows for lower Loan-To-Value (LTV) borrowing ratios. Lower class collateral can still be used, but with reduced borrowing efficiency against $USDu.
* This dynamic creates natural incentives for borrowers and governance to prioritize high-quality assets and maintain overall system health.

**LTVs by Credit Class:**

| Credit Class | LTV Ratio |
| ------------ | --------- |
| Class 1      | 98.5%     |
| Class 2      | 96.5%     |
| Class 3      | 94.5%     |
| Class 4      | 91.5%     |
| Class 5      | 86.0%     |
| Class 6      | 77.0%     |

**Key Benefits:**

* Maintains **risk-adjusted collateralization** across all $USDu supply
* Protects the protocol against collateral quality deterioration
* Enables $USDu to function as a highly reliable liquidity layer across DeFi