> For the complete documentation index, see [llms.txt](https://www.aevo.xyz/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://www.aevo.xyz/docs/aevo-products/aevo-exchange/technical-architecture/collateral-framework/aeusd/aeusd-composition.md).

# aeUSD Composition

aeUSD maintains a 5% liquidity target *(subject to change)*. This means that aeUSD keeps 5% in aevo USDC and 95% in aevo sDAI. This allows us to facilitate 5% of redemptions atomically without having to withdraw sDAI on L1. Rebalances are performed on a daily basis by a bot, to maintain the liquidity target. sDAI is a soft-wrapper, meaning it can be redeemed for DAI and subsequently swapped for USDC atomically.

**What happens if the current liquidity ratio > liquidity target (ex: 7% in USDC)?**

Whenever there is an excess of USDC in the vault we:

1. Bridge (current % - target %) amount of aevo USDC to the mainnet L1 [swap vault](https://etherscan.io/address/0x426d1F3866BfcDF4d0efEfeD1Ba3c5E06CaECbE6) via the [L2 bridge](https://explorer.aevo.xyz/address/0x4200000000000000000000000000000000000010)
2. Swap from USDC to sDAI through 1Inch via the `execute` function
3. Bridge the sDAI back to Aevo L1 via the [L1 bridge](https://etherscan.io/address/0x4082C9647c098a6493fb499EaE63b5ce3259c574), marking aeUSD vault as the recipient
4. Mint aevo sDAI to the aeUSD vault

This increases aeUSD exposure to sDAI and increases the APY for aeUSD holders.

**What happens if the current liquidity ratio < liquidity target (ex: 3% in USDC)?**

Whenever there is an excess of sDAI in the vault we:

1. Bridge (target % - current %) amount of aevo sDAI to the mainnet L1 [swap vault](https://etherscan.io/address/0x426d1F3866BfcDF4d0efEfeD1Ba3c5E06CaECbE6) via the [L2 bridge](https://explorer.aevo.xyz/address/0x4200000000000000000000000000000000000010)
2. Swap from sDAI to USDC through 1Inch via the `execute` function
3. Bridge the USDC back to Aevo L2 via the [L1 bridge](https://etherscan.io/address/0x4082C9647c098a6493fb499EaE63b5ce3259c574), marking aeUSD vault as the recipient
4. Mint aevo USDC to the aeUSD vault

This increases aeUSD exposure to USDC in order to facilitate withdrawals.

All of the above steps are performed within the confines of smart contracts on L1 and L2.


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