Skip to Content
How USPD Works
Scroll down to learn how minting USPD works, how Stabilizers provide overcollateral, how Liquidations and Overcollateralization stabilize the system.

The Stabilizer

It all starts with a Stabilizer. They have ETH they want to put to work to earn yield.

Minting a Stabilizer NFT

The Stabilizer mints a Stabilizer NFT, which represents their position in the system. The NFT automatically gets two contracts attached: A Stabilizer Escrow contract and a Position Escrow contract.

Stabilizer

Stabilizer Escrow

0 ETH
Unallocated

Position Escrow

Adding Collateral

They then deposit 10 ETH into their personal Stabilizer Escrow. This ETH is now unallocated collateral, ready to back new USPD.

Stabilizer

Stabilizer Escrow

10 ETH
Unallocated

Position Escrow

Setting the Ratio

Next, they set their desired overcollateralization ratio. For example 150%: For every 1 ETH a user provides, the Stabilizer will add 0.5 ETH, for a total of 150%.

Stabilizer

Stabilizer Escrow

10 ETH
Unallocated
Stabilizer's Preference
150% Ratio

Position Escrow

The User Arrives

Now, a User arrives with 1 ETH. They want to mint USPD, a stablecoin pegged to the US dollar.

Stabilizer

Stabilizer Escrow

10 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User

User Wallet

1 ETH
Available
0 USPD
Minted

Position Escrow

User Mints USPD

The User deposits their 1 ETH (worth e.g. $2,500) into a new Position Escrow. This ETH is now locked, ready to be collateralized.

Stabilizer

Stabilizer Escrow

10 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User

User Wallet

0 ETH
Available
0 USPD
Minted

Position Escrow

1 ETH
User
0 ETH
Stabilizer

Stabilizer Matches Collateral

To meet the 150% ratio, the Stabilizer's Escrow automatically moves 0.5 ETH into the Position Escrow, matching the user's deposit.

Stabilizer

Stabilizer Escrow

9.5 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User

User Wallet

0 ETH
Available
0 USPD
Minted

Position Escrow

1 ETH
User
0.5 ETH
Stabilizer

The Position Escrow

With the position now fully collateralized, 2,500 USPD are minted and sent to the User's wallet. The Position Escrow securely holds the 1.5 ETH.

Stabilizer

Stabilizer Escrow

9.5 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User

User Wallet

0 ETH
Available
2,500 USPD
Minted

Position Escrow

1.5 ETH
Total Collateral

Fully Collateralized

The Position Escrow is now overcollateralized at 150%, with the ETH price at $2,500. This creates a safety buffer against price drops.

Stabilizer

Stabilizer Escrow

9.5 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User

User Wallet

0 ETH
Available
2,500 USPD
Minted

Position Escrow

1.5 ETH
Total Collateral
ETH Price: $2,500
150% Collateralized

Price Goes Up

The price of ETH increases to $3,000. The value of the collateral is now $4,500, pushing the collateralization ratio up to a very safe 180%.

Stabilizer

Stabilizer Escrow

9.5 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User

User Wallet

0 ETH
Available
2,500 USPD
Minted

Position Escrow

1.5 ETH
Total Collateral
ETH Price: $3,000
180% Collateralized

Stabilizer Takes Profit

The Stabilizer can withdraw any collateral above the 125% minimum. They take 0.45 ETH, rebalancing the position to a lean 126% and realizing a profit.

Stabilizer

Stabilizer Escrow

9.95 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User

User Wallet

0 ETH
Available
2,500 USPD
Minted

Position Escrow

1.05 ETH
Total Collateral
ETH Price: $3,000
126% Collateralized

Danger Zone: Price Drops

But what happens if the price of ETH falls? When a position's collateralization ratio drops below the 125% minimum, it becomes vulnerable to liquidation.

Entering Liquidation Risk

The price of ETH drops to $2,700. The position's collateral is now worth only $2,835, pushing the ratio down to a risky 113%. The position is now at risk of liquidation.

Stabilizer

Stabilizer Escrow

9.95 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User

User Wallet

0 ETH
Available
2,500 USPD
Minted

Position Escrow

1.05 ETH
Total Collateral
ETH Price: $2,700
113% Collateralized

The Liquidator Arrives

A new actor, the Liquidator, sees the risky position. They can help secure the system and earn a reward by providing 2,500 USPD to close the position.

Stabilizer

Stabilizer Escrow

9.95 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User
Liquidator

Liquidator Wallet

0.926 ETH
To Spend
0 USPD
For Liquidation

Position Escrow

1.05 ETH
Total Collateral
ETH Price: $2,700
113% Collateralized

Acquiring USPD

To do this, the Liquidator uses their own ETH to acquire 2,500 USPD from the system's aggregate liquidity pool, which is backed by many other healthy Stabilizer positions.

Liquidator

Liquidator Wallet

0 ETH
To Spend
2,500 USPD
For Liquidation

USPD System Pool

Initiating Liquidation

The Liquidator calls the liquidation function, sending their 2,500 USPD to the system. This cancels out the original user's debt.

Stabilizer

Stabilizer Escrow

9.95 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User
Liquidator

Liquidator Wallet

0 ETH
To Spend
0 USPD
For Liquidation

Position Escrow

1.05 ETH
Total Collateral
ETH Price: $2,700
113% Collateralized

Collateral is Seized

The system seizes the 1.05 ETH from the risky Position Escrow. The original Stabilizer loses their collateral, but the system remains solvent.

Stabilizer

Stabilizer Escrow

9.95 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User
Liquidator

Liquidator Wallet

0 ETH
To Spend
0 USPD
For Liquidation

Position Escrow

1.05 ETH
Total Collateral
ETH Price: $2,700
113% Collateralized

Liquidator is Rewarded

The Liquidator receives ETH equal to the USPD they provided, plus a 5% bonus. In total, they get 0.97 ETH for their service.

Stabilizer

Stabilizer Escrow

9.95 ETH
Unallocated
Stabilizer's Preference
150% Ratio
User
Liquidator

Liquidator Wallet

0.97 ETH
Received
0 USPD
For Liquidation

Position Escrow

0.08 ETH
Total Collateral

The Insurance Fund

The remaining 0.08 ETH is sent to the system's Insurance Fund, which provides an extra layer of security against extreme market events.

User
Liquidator

Liquidator Wallet

0.97 ETH
Received
0 USPD
For Liquidation

Position Escrow

0.08 ETH
Total Collateral

Insurance Fund

0.08 ETH
System Reserve

System Secured

The risky position is closed, the system's health is restored, and all participants were incentivized to act. The peg is secure.

User
Liquidator

Liquidator Wallet

0.97 ETH
Received
0 USPD
For Liquidation

Position Escrow

0 ETH
Total Collateral

Insurance Fund

0.08 ETH
System Reserve

What About The User?

The original user's position was liquidated, but their 2,500 USPD are still safe, now backed by the system's aggregate liquidity pool.

User Redeems USPD

At any time, the user can burn their USPD to redeem the equivalent value in ETH from the system at the current market rate.

User

User Wallet

0 ETH
Available
2,500 USPD
Minted

USPD System Pool

Burning USPD

The user burns their 2,500 USPD. The system removes this liability from circulation, keeping the currency fully backed.

User

User Wallet

0 ETH
Available
0 USPD
Minted

USPD System Pool

Receiving ETH

They receive 0.926 ETH. At the current price of $2,700/ETH, this is worth exactly $2,500. The user's funds were fully protected, and the USPD peg held perfectly.

User

User Wallet

0.926 ETH
Available
0 USPD
Minted

USPD System Pool

Full Circle

The user has successfully exited their position. The system ensured their funds were safe, even when their original counterparty's position was liquidated.

User

User Wallet

0.926 ETH
Available
0 USPD
Minted

USPD System Pool

How Stabilizers Earn Yield

Stabilizing USPD is not just a public good; it's a powerful, delta-neutral yield-generating strategy based on funding fees.

The Delta-Neutral Strategy

To remain market-neutral against their long ETH exposure, Stabilizers open a short position on a perpetual futures exchange. This hedges against ETH price volatility.

Long ETH
Short ETH

Earning Funding Fees

In most market conditions, traders who are short ETH are paid funding fees by those who are long. This provides a consistent yield, averaging around 11% annually.

Short ETH
Funding Fees
~11% APY

The Power of Leverage

This strategy is highly capital-efficient. Stabilizers only need to provide a fraction of the capital for the short position they open, effectively leveraging their capital.

Leverage

%
Margin
%
Short Position
Capital Efficiency
~3x Leverage

Choose Your Strategy

Stabilizers can choose their level of risk. A conservative 2x leveraged short can yield ~22% APY, while a more aggressive 3x leverage can yield ~33% APY.

Risk-Averse
2x * 11% =
22% APY
Risk-On
3x * 11% =
33% APY

Ready to Earn?

Become a Stabilizer today to start earning a competitive, delta-neutral yield while helping to secure the USPD ecosystem.

~20-35% APY
Delta-Neutral

Questions?

If you have any questions, feel free to join our Telegram community