> For the complete documentation index, see [llms.txt](https://docs.securd.org/documentation/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.securd.org/documentation/securd-models/diversification-model.md).

# Diversification Model

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In addition to its Collateral Model, **Securd** offers additional capital protection through collateral diversification.  
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Let's examine the situation where all loans granted by our Token A Lending Pool are backed by a single LP Token A/B. If a specific event causes a drop in the LP Token's value such that the collateral value is only 90% of the loan value when liquidation happens, the Lending Pool will suffer a 10% loss. 

Let's assume another situation where the Collateral Pool is equally composed of 4 different LP Tokens (A/B, A/C, A/D, A/E). A similar drop in LP Token A/B will only cause a 2.5% loss.

While collateralization reduces the probability of loss, diversification drastically reduces the size of the loss in the case it happens. 

In this version, collateral diversification is achieved passively by mutualizing collateral for each pool. In a future version, **Securd** will incentivize collateral diversification through interest rate mechanisms.