> For the complete documentation index, see [llms.txt](https://usdu.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://usdu.gitbook.io/docs/how-usdusdu-works/yield-collateralized-model.md).

# Yield Collateralized Model

At its core, $USDu is a yield-collateralized stablecoin. This model ensures that every $USDu in circulation is fully backed by productive, on-chain lending income.

Unlike conventional stablecoins that rely on static collateral or user-minted supply, $USDu is exclusively minted by the protocol against vault tokens from credit-rated lending markets. These vault tokens represent claims on underlying lending activity, generating real, sustainable yield.

* **Fully backed by yield-bearing collateral**\
  Every $USDu is minted against productive assets in credit-rated on-chain lending markets.
* **No floating yield obligation**\
  Yield is not promised in advance but earned directly from actual lending income.
* **Simple user flow**
  * Acquire $USDu
  * Deposit into the $USDu Lending Vault
  * Receive $sUSDu (non-rebasing, yield-generating vault token)
* **No staking or lockups**\
  No need to lock tokens or perform extra actions. Users can deposit or withdraw anytime.
* **Transparent yield**\
  Yield is generated from real on-chain lending markets. No hidden debt or circular incentives.
* **Designed for composability**\
  $sUSDu can easily integrate into other DeFi protocols as a yield-bearing stable asset.
* **Efficient capital usage**\
  Users can deploy $USDu and $sUSDu into trading, liquidity provision, or leveraged strategies while earning real yield.