> For the complete documentation index, see [llms.txt](https://docs.looputo.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.looputo.xyz/mechanism/leverage-peg.md).

# Leverage Peg

Looputo's automation system to correct leverage drift.

A looping position's leverage does not stay where it was set. As yield accrues on the collateral and interest accrues on the debt, leverage drifts away from its target. Leverage Peg monitors each position's leverage continuously and rebalances it back to target whenever the drift exceeds a set threshold, with no action required from users.

### Why Leverage Drifts

Leverage is the ratio of collateral value to equity. Under positive carry, equity grows faster than the position, so leverage drifts down over time. Left uncorrected, the position gradually stops expressing the exposure the user chose: a 10x position slowly becomes a 9x one.

### How It Works

Leverage Peg compares each position's current leverage with its target. When the deviation exceeds a set threshold, the position is rebalanced: it re-levers if leverage has drifted below target, and deleverages if it has drifted above, returning the position to its target.

<figure><img src="https://1517612113-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FiyPrXoSfRikirWhKbEx7%2Fuploads%2Fgit-blob-b59249c8f1d34e04ac1ddaeea2252cc282514c50%2Fleverage-peg.jpg?alt=media" alt="Actual leverage drifts away from target over time; each time it reaches the upper or lower band, Looputo rebalances it back to target."><figcaption></figcaption></figure>

Rebalancing is threshold-based rather than continuous. Small drifts are left alone, so the position is not churned by gas and execution costs on deviations too small to matter; a rebalance is triggered only once the drift is large enough to change the position's risk and return profile.

{% hint style="info" %}
Leverage Peg corrects passive drift under normal conditions. Deliberate leverage reductions by [Liquidation Protection](/mechanism/liquidation-protection.md) and [Negative Carry Protection](/mechanism/negative-carry-protection.md) are separate: those systems restore target leverage themselves once conditions recover.
{% endhint %}