Overview
dTRINITY USD (dUSD) is a decentralized and full-reserve stablecoin, backed by an on-chain reserve of other USD-denominated stablecoins and yieldcoins. Based on the ERC-20 standard, every dUSD token is backed by at least $1 of collateral and can be minted permissionlessly via smart contracts with no fees (excluding gas).
dUSD will be issued natively on the Ethereum and Fraxtal L2 networks in Q4 2024. Follow-on expansions to other chains will commence in 2025.
For user instructions, please refer to 
How to Mint.
How to Mint.Collateral Reserve
By using a diversified on-chain reserve of collateral, dUSD is able to maintain stability and independence from the traditional banking system while providing 24/7 transparency. Each reserve asset is strategically selected based on its quality, track record, and reputation. As the protocol evolves, governance may evalute opportunities to improve the reserve’s diversification and earnings by incorporating new stablecoins and yieldcoins, or removing existing ones that no longer meet dTRINITY’s standards.
The dUSD reserve has a mandate to allocate ~90% of its holdings in yieldcoins to generate float interest and fund ongoing borrowing rebates for dLEND users. The rest is allocated to stablecoins to support protocol redemption operations.
Below are the currently supported reserve assets that can be used to mint dUSD:
Collateral Asset | Blockchain Network | Mint Ratio |
✅ FRAX | Fraxtal, Ethereum | $1 of FRAX = 1 dUSD |
⏳ DAI | Fraxtal, Ethereum | $1 of DAI = 1 dUSD |
⏳ USDS | Ethereum | $1 of USDS = 1 dUSD |
⏳ USDC | Fraxtal, Ethereum | $1 of USDC = 1 dUSD |
✅ sFRAX | Fraxtal, Ethereum | $1 of sFRAX = 1 dUSD |
⏳ sDAI | Fraxtal | $1 of sDAI = 1 dUSD |
⏳ sUSDS | Ethereum | $1 of sUSDS = 1 dUSD |
⏳ Others (TBD) | Fraxtal, Ethereum, others | $1 of _____ = 1 dUSD |
Contact us if you are a yieldcoin project interested in collaboration.
Price Oracles
The dUSD reserve’s NAV (Net Asset Value) and mint ratio per collateral asset are determined based on each asset’s price feed via the API3 oracle. Additional oracle providers, such as RedStone, will be incorporated in the future to add redundancy and enhance the reliability of price data.
Stability Mechanisms
Non-Redeemability
Mirroring the US Dollar's non-redeemability for its underlying gold reserves post-Nixon Shock (1971), dUSD is also designed to have non-redeemable reserves to maximize float interest generation. In place of redemption, dUSD relies on open market operations to manage liquidity and stability, similar to the Fed.
Stability Market Operations (SMO)
When needed, only the protocol can strategically buyback and redeem/burn dUSD via SMOs on Curve and other DEXs where dUSD liquidity pools are deployed. This process contracts the dUSD money supply to defend the $1 peg. It can also over-collateralize the reserve if dUSD is repurchased at a discount due to an increase in selling pressure (e.g., borrowers swapping dUSD for other assets to leverage/loop).
SMOs are akin to the Fed’s open market purchases of financial assets.
Algorithmic Market Operations (AMO)
Pioneered by Frax, AMOs are autonomous smart contracts designed to execute stablecoin monetary policies, enhancing liquidity and stability. The AMO mechanism complements SMOs by managing the creation and deployment of AMO dUSD. This AMO dUSD is used to supply key liquidity pools on Curve and other DEXs algorithmically, ensuring that the protocol can respond quickly to increased buying pressure on dUSD (e.g., borrowers swapping other assets for dUSD to repay their loans). When needed, AMOs can expand the dUSD money supply, defending the $1 peg from trading at a premium while over-collateralizing its reserves in the process.
AMOs are akin to the Fed’s open market sales of financial assets.
Borrowers Arbitrage
When dUSD trades at a discount, borrowers are naturally incentivized to buyback dUSD on Curve at a cheaper price in order to repay their debt on dLEND, earning arbitrage profits as a result. On the other hand, dLEND borrowers can supply collateral to take out dUSD loans at $1 per token to sell on Curve and arbitrage when it’s trading at a premium. These processes help reinforce the stability of dUSD’s $1 peg.
Note: The price of dUSD is hard-pegged to $1 on dLEND.
Market Makers (MM) Arbitrage
Similarly, when dUSD trades at a discount, MMs are naturally incentivized to buy dUSD on Curve in order to front-run the protocol’s SMOs and borrowers, capturing arbitrage profits for themselves. Conversely, when dUSD trades at a premium, MMs can mint new dUSD at $1 per token to sell on Curve and arbitrage. This also helps reinforce the stability of dUSD’s $1 peg.
Dynamic Interest Rebates (Subsidies)
On a weekly basis, ~90% of earnings generated by the reserve from the previous week will be used to mint new dUSD. The newly minted dUSD will be distributed proportionally to dUSD borrowers on dLEND as rebates, based on the size of their loans and the duration they’ve remained outstanding. Users must claim their rebates manually, but dLOOP vaults can claim rebates automatically.
The rate of claimable rebates is dependent on the circulating supply of dUSD vs. its total oustanding debt on dLEND. When borrowers swap dUSD for other assets, it flows to LPs and become available for lenders to reacquire. As long as borrowers supply new collateral, they can borrow the same dUSD multiple times (i.e., debt multiplier). On the other hand, when borrowers buyback dUSD to repay their loans, the total outstanding debt decreases. This means the debt/supply multiple and interest rebate rate will fluctuate over time.
- dUSD supply > demand (debt) = Higher rebates.
- dUSD supply < demand = Lower rebates.
Below is a simple illustration of rebate calculation, asumming a base float interest rate of 5% APY:
Circulating Supply | Outstanding Debt | Debt Multiple | Rebate APY |
10,000,000 | 5,000,000 | 0.5 | 10.00% |
10,000,000 | 10,000,000 | 1 | 5.00% |
10,000,000 | 20,000,000 | 2 | 2.50% |
10,000,000 | 30,000,000 | 3 | 1.67% |
10,000,000 | 50,000,000 | 5 | 1.00% |
Because interest rebates are derived from reserves, the rate may fluctuate but it will always be non-zero as long as there is a supply of dUSD in circulation. In other words, rebates lower the effective equilibrium of average stablecoin borrowing costs on dLEND, making dUSD more competitive as a medium of liquidity andleverage vs. unsubsidized stablecoins. In aggregate, the average supply of dUSD should grow over time as low borrowing costs attract capital from more market participants.
Note: dUSD cannot be used as collateral to borrow itself on dLEND.
Interest Rate Cycles
dTRINITY’s interest rate cycles, driven by dUSD’s full-reserve system, borrowing rebates, and dLEND’s interest rate model, invert the dynamics seen in real-world cycles driven by the Fed. This phenomenon also exists on other lending protocols with supply and demand-driven interest rates.
Rising Rates = Money Supply Expansion
- Low dUSD Supply vs. Debt: When there is high borrowing demand and less dUSD in circulation vs. the outstanding debt, lending rates increase due to high utilization but rebates are declining, leading to higher borrowing costs at the same time.
- Supply Expansion: More lenders will then supply dUSD as borrowers begin buying it back to repay their loans. The AMO mechanism could become active at this point, which, in turn, increases the dUSD supply and its underlying reserves.
Declining Rates = Money Supply Contraction
- High dUSD Supply vs. Debt: Conversely, when there is low borrowing demand and more dUSD in circulation vs. the outstanding debt, lending rates decrease due to low utilization but rebates are rising again, leading to reduced borrowing costs.
- Supply Contraction: More borrowers will then take out loans (to sell) as lenders start withdrawing dUSD. Eventually, the SMO mechanism could activate to initiate buybacks, decreasing the dUSD supply and its underlying reserves.
- Cycle Repeats ☯️
The key to growth throughout these expansion and contraction cycles is maintaining a consistent and sustainable utilization ratio between supply and demand. This is why dTRINITY subsidizes dUSD borrowers, to stimulate demand and protocol utilization, attracting more supply. In aggregate, the average supply of dUSD will grow over time as more market participants join the ecosystem, drawn by low borrowing costs and sustainable yields.
Differences vs. the Fed
The key difference between dTRINITY’s DeFed model and the Federal Reserve lies in their reserve structures. dTRINITY utilizes a full-reserve system, where each dUSD is fully backed by reserves with exogenous yields from DeFi (similar to traditional foreign reserves). These earnings fund borrowing rebates and naturally adjust interest rates based on supply and demand, avoiding money printing and unchecked debt expansion.
In contrast, the Fed’s fractional reserve system artificially lowers rates through endogenous, centrally-planned monetary policies, leading to inflation and ever-growing debt.
Federal Reserve & USD | dTRINITY & dUSD | |
Reserve System | Fractional reserve (debt based) | Full-reserve (collateral based) |
Currency Stability | Prone to inflation due to money printing and debt expansion | No de-pegging as supply growth is tied to new reserves |
Market Operations | Open market operations with unlimited liquidity to control inflation and interest rates | SMOs and AMOs adjust liquidity based on standing reserves to defend the $1 peg |
Interest Rate Mechanism | Artificially managed via centrally-planned monetary policies | Adjusts naturally based on reserve earnings and market forces |
Yield Distribution | Interest is paid to banks based on their Fed deposits to contract money supply | Reserve earnings distributed as borrowing subsidies to boost utilization and expand supply |
Growth Driver | Expands by printing money and issuing new debt to lower borrowing costs | Expands based on new reserves generating yield to subsidize borowing costs |
Supply Expansion | Lowers interest rates to grow debt and expand money supply | High utilization/rates attract new reserves, growing supply vs. debt |
Supply Contraction | Raises interest rates to reduce debt and contract money supply | Low utilization/rates reduce reserves, shrinking supply vs. debt |
Debt Management | High debt expansion due to fractional reserves | Limited debt expansion as it’s tied to actual collateral |
Long-Term Growth | Dependent on policy decisions; risks inflation and bubbles | Sustainable, driven by market forces and collateral backings |
User Benefits
Unlike centralized stablecoins (e.g., USDC, USDT) which internalize their reserve earnings, dUSD prioritizes the dTRINITY community by externalizing a majority of its reserve earnings as borrowing subsidies/rebates to drive protocol growth and adoption.
Additionally, dUSD LPs can earn governance token emissions (initially as points), giving them a stake in the protocol based on their liquidity contributions. This community-centric model benefits both buy-side and sell-side demands while ensuring that the protocol’s future success translates directly into enhanced value and benefits for members of its ecosystem.
Use Case | Category | Supply | Demand | Benefit |
LP dUSD | Buy-side demand (long) | Liquidity | High yield | Yield driven by pool fees & other incentives |
Lending dUSD | Buy-side demand (long) | Liquidity | High yield | Yield driven by subsidized utilization |
Borrowing dUSD | Sell-side demand (short) | Collateral | Cheap liquidity & leverage | Interest rebates from dUSD |
For more information, please refer to Yields & Rewards.