diff --git a/packages/contracts/src/dollar/libraries/LibUbiquityPool.sol b/packages/contracts/src/dollar/libraries/LibUbiquityPool.sol
index ae736accf..695fc75cc 100644
--- a/packages/contracts/src/dollar/libraries/LibUbiquityPool.sol
+++ b/packages/contracts/src/dollar/libraries/LibUbiquityPool.sol
@@ -994,7 +994,8 @@ library LibUbiquityPool {
 
     /**
      * @notice Sets collateral ratio
-     * @dev How much collateral/governance tokens user should provide/get to mint/redeem Dollar tokens, 1e6 precision
+     * @dev How much collateral/governance tokens user should provide/get to mint/redeem Dollar tokens, 1e6 precision.
+     * @dev Collateral ratio is capped to 100%.
      *
      * @dev Example (1_000_000 = 100%):
      * - Mint: user provides 1 collateral token to get 1 Dollar
@@ -1007,6 +1008,7 @@ library LibUbiquityPool {
      * @param newCollateralRatio New collateral ratio
      */
     function setCollateralRatio(uint256 newCollateralRatio) internal {
+        require(newCollateralRatio <= 1_000_000, "Collateral ratio too large");
         UbiquityPoolStorage storage poolStorage = ubiquityPoolStorage();
 
         poolStorage.collateralRatio = newCollateralRatio;
diff --git a/packages/contracts/test/diamond/facets/UbiquityPoolFacet.t.sol b/packages/contracts/test/diamond/facets/UbiquityPoolFacet.t.sol
index ae481d082..de0cf1807 100644
--- a/packages/contracts/test/diamond/facets/UbiquityPoolFacet.t.sol
+++ b/packages/contracts/test/diamond/facets/UbiquityPoolFacet.t.sol
@@ -1387,6 +1387,20 @@ contract UbiquityPoolFacetTest is DiamondTestSetup {
         vm.stopPrank();
     }
 
+    function testSetCollateralRatio_ShouldRevertIfRatioLargerThanOneHundredPercent()
+        public
+    {
+        vm.startPrank(admin);
+        uint256 oldCollateralRatio = ubiquityPoolFacet.collateralRatio();
+        assertEq(oldCollateralRatio, 1_000_000);
+
+        uint256 newCollateralRatio = 1_000_001;
+        vm.expectRevert("Collateral ratio too large");
+        ubiquityPoolFacet.setCollateralRatio(newCollateralRatio);
+
+        vm.stopPrank();
+    }
+
     function testSetEthUsdChainLinkPriceFeed_ShouldSetEthUsdChainLinkPriceFeed()
         public
     {