# Rehypothecation

## Overview

FW tokens hold their underlying assets in two places: **idle reserves** (for instant redemptions) and an **ERC-4626 vault** (for yield generation). The RehypothecationModule defines the parameters that govern this balance.

{% hint style="info" %}
Rehypothecation ensures FW always has enough idle liquidity for redemptions while maximizing yield by deploying the rest into the underlying vault.
{% endhint %}

## How it works

The RehypothecationModule defines three parameters (in basis points):

| Parameter   | Purpose                                                                        |
| ----------- | ------------------------------------------------------------------------------ |
| `phiMin`    | Minimum idle ratio — if idle drops below this, assets are withdrawn from vault |
| `phiMax`    | Maximum idle ratio — if idle exceeds this, excess is deposited into vault      |
| `phiTarget` | Target idle ratio — used by `forceRehypothecation()` to rebalance              |

### Triggering rebalance

* **`triggerRehypothecation()`** — Callable by anyone. Deposits excess to vault if `idleRatio > phiMax`, or withdraws from vault if `idleRatio < phiMin`. No-ops if the ratio is within bounds.
* **`forceRehypothecation()`** — Owner-only. Always rebalances to `phiTarget` regardless of current ratio.

### Example

If `phiMin = 10%`, `phiMax = 30%`, `phiTarget = 20%`:

* FW holds 100 USDC total, 5 USDC idle (5% idle ratio → below `phiMin`)
* Anyone calls `triggerRehypothecation()` → vault withdraws USDC to bring idle up
* After rebalance: \~20 USDC idle, \~80 USDC in vault

## Key features

* **Automatic yield optimization** — Excess idle funds are deployed for yield
* **Redemption guarantees** — Minimum idle ratio ensures users can always redeem
* **Permissionless triggers** — Anyone can call `triggerRehypothecation()` when out of bounds
* **Owner-controlled force rebalance** — Protocol can rebalance to target at any time

## Related contracts

* [`RehypothecationModule.sol`](https://docs.fira.money/developers/protocol-contracts/rehypothecation-module) — Contract details
* [`FWBase.sol`](https://docs.fira.money/developers/token-contracts/fw-tokens) — FW base contract that uses the module


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