Redemption Liquidity

$USDu and $sUSDu are designed for high liquidity and easy redemption, without relying on user-provided liquidity pools.

Redemption Mechanism:

• Users can acquire $USDu on decentralized markets (e.g. Curve, Balancer) or by borrowing $USDu in supported lending markets.

• Users can deposit $USDu into the $USDu Lending Vault to receive $sUSDu.

• $sUSDu can always be redeemed for $USDu from the vault, as long as there is sufficient liquidity remaining in the vault.

What happens if liquidity is tight?

• If all $USDu in the vault is currently borrowed and circulating in the market (due to strong trading demand), redemption may temporarily be delayed until borrowers repay.

• The protocol uses adaptive interest rate models:

  • The borrow rate automatically increases when utilization is high.

  • This incentivizes borrowers to repay their loans, returning $USDu liquidity to the vault.

  • Meanwhile, $sUSDu holders earn higher APY during this period of high utilization.

Key Design Features:

• The protocol does not and can not use user deposits to mint new $USDu, so user deposits are always safely isolated and can be redeemed.

• There is no fractional reserve mechanism or hidden risk of depegging.

• Borrowers can be liquidated if their positions exceed LTV thresholds, further protecting redemption liquidity.

Summary:

$USDu’s redemption is designed to always remain sound and transparent. The dynamic interest model ensures that market forces naturally balance supply and demand, creating a strong guarantee that users can redeem $sUSDu for $USDu, with higher yields during periods of tight liquidity.