# DRS Mechanism

![](/files/-MHz9017LQODwlwfGLBe)

The Digital Reserve System will algorithmically rebalance the VELO token Collateral Pools backing the issued digital credit to maintain a 1:1 value link between the digital credit and the VELO token and the original fiat deposit. When a Trusted Partner received a fiat deposit from a end user, they then engage the Velo Protocol to generate a digital credit by posting and locking an equivalent value of VELO tokens via the Velo Protocol. The DRS then tracks these pooled tokens by assigning them to a collateral pool that is linked with the digital credit issued and adjusting the amount of tokens in the pool at any given time to maintain the value at initial issuance. At the time of creation, the value of the digital credit equals the value of VELO tokens deposited as well as the fiat original deposited with the Trusted Partner. After this period, however, the price of VELO tokens will naturally fluctuate on the open market as a function of supply and de- mand. In response, the DRS will automatically rebalance the amount of VELO tokens in the Col- lateral Pool to maintain the 1:1 value link with the value of digital credits created. If the price of VELO tokens goes up, then VELO tokens will be removed from the Collateral Pool and returned to the Reserve Pool. This action reduces the number of tokens in the Collateral Pool to maintain 1:1 link between collateral value and digital credit value. If the price of Velo Token goes down relative to the digital credit, then the DRS will add VELO tokens to the Collateral Pool from the Reserve Pool, to maintain the value link of collateral value and digital credit value.

{% content-ref url="/pages/-MHzC8Oh-UM9u4sDRfKp" %}
[Setup stable credit](/base-concepts/setup-stable-credit.md)
{% endcontent-ref %}

{% content-ref url="/pages/-MHzGy2lmkajgJtMK-wo" %}
[Mint stable credit](/base-concepts/mint-stable-credit.md)
{% endcontent-ref %}

{% content-ref url="/pages/-MHzHn0KE2KYaOYjiuID" %}
[Redeem stable credit](/base-concepts/redeem-stable-credit.md)
{% endcontent-ref %}

{% content-ref url="/pages/-MHzIor6rHfL7uDAYSqm" %}
[Rebalancing the Reserve and Collateral Pool](/base-concepts/rebalancing-the-reserve-and-collateral-pool.md)
{% endcontent-ref %}


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