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 is natively issued on Fraxtal L2, with multichain expansions to Ethereum and other networks beginning in 2025. Among dTRINITY's key components, only dUSD and its external liquidity pools will be expanded beyond Fraxtal in order to prioritize strategic partnerships with other major lending protocols.
For user instructions, please refer to 
How to Mint.
How to Mint.Collateral Reserve
Through its diversified on-chain reserve, dUSD is able to maintain independence from the traditional banking system while offering stability and 24/7 transparency. The protocol strategically selects each reserve asset based on its quality, track record, and reputation. As dTRINITY evolves, governance may evaluate opportunities to enhance the reserve's diversification and earnings by adding new stablecoins and yieldcoins, or removing those that no longer meet the protocol's standards.
dTRINITY has a mandate to allocate at least 90% of dUSD’s reserve holdings in yieldcoins, generating float income to subsidize dUSD borrowers with ongoing interest rebates.
The following reserve assets are currently approved for minting dUSD:
Reserve Asset | Type | Network | Mint Ratio | Oracle |
✅ frxUSD (fka FRAX) | Stablecoin | ✅ Fraxtal, ⏳ Ethereum | $1 of frxUSD = 1 dUSD | |
✅ sfrxUSD (fka sFRAX) | Yieldcoin | ✅ Fraxtal, ⏳ Ethereum | $1 of sfrxUSD = 1 dUSD | |
✅ DAI | Stablecoin | ✅ Fraxtal, ⏳ Ethereum | $1 of DAI = 1 dUSD | |
✅ sDAI | Yieldcoin | ✅ Fraxtal, ⏳ Ethereum | $1 of sDAI = 1 dUSD | |
✅ USDC | Stablecoin | ✅ Fraxtal, ⏳ Ethereum | $1 of USDC = 1 dUSD | |
✅ USDT | Stablecoin | ⏳ Fraxtal, ⏳ Ethereum | $1 of USDT = 1 dUSD | |
⏳ USDS (fka DAI) | Stablecoin | ⏳ Fraxtal, ⏳ Ethereum | $1 of USDS = 1 dUSD | TBD |
⏳ sUSDS (fka sDAI) | Yieldcoin | ⏳ Fraxtal, ⏳ Ethereum | $1 of sUSDS = 1 dUSD | TBD |
⏳ crvUSD | Stablecoin | ⏳ Fraxtal, ⏳ Ethereum | $1 of crvUSD = 1 dUSD | |
⏳ scrvUSD | Yielcoin | ⏳ Fraxtal, ⏳ Ethereum | $1 of scrvUSD = 1 dUSD | |
⏳ Others (TBD) | Stablecoin or yieldcoin | TBD | $1 of ____ = 1 dUSD | TBD |
Reserve assets may also include LP positions in the following designated liquidity pools (via algorithmic market operations):
Reserve Asset | DEX | Type | Network |
Stablecoin/stablecoin | ✅ Fraxtal, ⏳ Ethereum | ||
⏳ dUSD/sfrxUSD LP | Stablecoin/yieldcoin | ⏳ Fraxtal, ⏳ Ethereum | |
⏳ dUSD/sDAI LP | Stablecoin/yieldcoin | ⏳ Fraxtal, ⏳ Ethereum | |
⏳ dUSD/sUSDS LP | Stablecoin/yieldcoin | ⏳ Fraxtal, ⏳ Ethereum | |
⏳ dUSD/scrvUSD LP | Stablecoin/yieldcoin | ⏳ Fraxtal, ⏳ Ethereum | |
⏳ Others (TBD) | TBD | Stablecoin/stablecoin or stablecoin/yieldcoin | TBD |
Price Oracles
The dUSD reserve's NAV (Net Asset Value) and mint ratio per reserve asset are determined based on each asset's USD price feed via the API3 oracle. Additional oracles, such as RedStone and Curve pools, will be incorporated in the future to add redundancy and enhance the reliability of price feeds.
To protect against de-pegging events caused by temporary market liquidity issues, API3 price feeds for yieldcoins are based on the NAV of their underlying holdings (per unit) rather than their market-traded prices. For example, API3 provides a feed for both sfrxUSD/frxUSD—how much frxUSD is staked per sfrxUSD—and frxUSD/USD—how much frxUSD is currently trading for. The final value of sfrxUSD is then determined by multiplying sfrxUSD/frxUSD with frxUSD/USD.
In the case of yieldcoins, if the underlying stablecoin is trading at a premium above $1, dUSD's oracles will round the price down to exactly $1. This prevents minting activities from posing under-collateralization risks since the stablecoin's price will likely return to $1.
Conversely, if a reserve asset devalues significantly and does not recover within a 24-hour period, governance can assess the situation and take action to de-risk the reserve by swapping the devalued asset out for another uncorrelated asset. Additionally, governance can temporarily or permanently suspend the minting of dUSD with the devalued asset. These measures help manage risks and protect the protocol from sudden market shocks.
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 earnings/rebates. In place of redemption, dUSD relies on arbitrage from borrowers, traders, and LPs, as well as open market operations to maintain liquidity and soft-peg it to $1 on DEXs.
Stability Market Operations (SMO)
SMOs are akin to the Fed’s open market purchases of financial assets. However, unlike the Fed's approach of expanding the money supply through debt issuance (i.e., printing USD to buy US Treasuries), SMOs are designed to maintain dUSD's price stability during periods of debt expansion by contracting its supply.
When dUSD trades at a discount, the protocol can utilize its full-reserve backing to strategically buy back and redeem dUSD from DEXs like Curve, where dUSD pools are deployed. This process reduces dUSD’s supply to stabilize the peg when it falls below $1. The SMO process also over-collateralizes the reserve with arbitrage profits since dUSD is repurchased at a discount. This typically occurs when selling pressure increases, such as when borrowers swap dUSD for other assets to leverage or loop.
Algorithmic Market Operations (AMO)
AMOs are akin to the Fed’s open market sales of financial assets. However, unlike the Fed’s approach of contracting the money supply through debt reduction (i.e., selling US Treasuries for USD), AMOs are designed to maintain dUSD's price stability during periods of debt contraction by expanding its supply.
Pioneered by Frax, AMOs are smart contracts that automatically execute monetary policies on-chain to enhance a stablecoin’s liquidity and stability. Similarly, dUSD's AMO mechanism complements its SMOs by expanding the money supply with unbacked tokens (without under-collateralizing its reserve). When dUSD trades at a premium above $1, the protocol can supply or sell these tokens to designated dUSD pools to stabilize its peg, acquiring new reserves while over-collateralizing dUSD with arbitrage profits in the process. This enables faster responses to increased buying pressure, such as when borrowers swap other assets for dUSD to repay debt.
Learn more about the original AMO mechanism from Frax here.
Borrowers Arbitrage
When dUSD trades below $1, existing borrowers have a natural incentive to buy it back at a discount and repay their debt on dLEND at face value. Conversely, when dUSD trades above $1, borrowers can supply collateral to dLEND, borrow dUSD at $1, and sell it at a premium to arbitrage. These processes also help reinforce dUSD's soft peg to $1.
Note: The price of dUSD is hard-coded to $1 on dLEND. Additionally, dUSD is disabled as a borrowing collateral on dLEND by default to prevent liquidation risks and subsidy arbitrage from borrowers.
Market Makers (MM) Arbitrage
Like borrowers, MMs are naturally incentivized to buy dUSD when it trades at a discount to front-run the protocol's SMOs and borrowers, capturing arbitrage profits for themselves. Conversely, they can mint new dUSD at $1 per token to sell when it's trading at a premium. As MMs adds more liquidity, dUSD’s soft peg to $1 should gradually improve, decreasing its reliance on SMOs and AMOs to maintain stability.
Reserve Over-Collateralization
Over time, SMO/AMO profits along with a portion of dLEND’s fees and dUSD’s reserve earnings will accumulate as excess reserves. This pushes dUSD's reserve above a 100% collateral ratio (CR), strengthening market confidence and price stability while building a buffer against potential reserve devaluation. When the CR exceeds a certain threshold in the future, protocol governance can decide what to do with the excess reserves (e.g., funding more subsidies).
Dynamic Interest Rebates (Subsidies)
On a weekly basis, at least 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 outstanding debt.
The Rebate APY (annual percentage yield) on dLEND indicates the latest rate of dUSD rebates that borrowers can claim. This rate is dependent on dUSD’s yield-bearing reserve vs. its total debt on dLEND. When borrowers swap dUSD for other assets, it flows to liquidity pools and become available for lenders to reacquire. Ultimately, the same dUSD could end up getting re-lent multiple times, creating a money supply and debt multiplier effect like in TradFi. This means the debt-to-reserve ratio, or “debt ratio” (DR), as well as the Rebate APY, will fluctuate over time based on the following dynamics:
- Total debt > Total yield-bearing reserves = Higher DR = Lower Rebate APY
- Total debt < Total yield-bearing reserves = Lower DR = Higher Rebate APY
Below is a simple illustration of the Rebate APY’s calculation, assumming that dUSD’s reserve is generating 10% APY and all of it goes to funding the Rebate APY:
Outstanding Debt | Yield-Bearing Reserves | Debt Ratio | Rebate APY |
$50,000 | $100,000 | 1 : 2 | 10% / 0.5 = 20% |
$100,000 | $100,000 | 1 : 1 | 10% / 1 = 10% (base rate) |
$200,000 | $100,000 | 2 : 1 | 10% / 2 = 5% |
$500,000 | $100,000 | 5 : 1 | 10% / 5 = 2% |
Because there are always yield-bearing reserves backing dUSD, even as the DR increases, the Rebate APY will always remain above zero. This means interest rebates effectively lower the equilibrium of stablecoin borrowing costs on dLEND vs. other unsubsidized stablecoins and lending protocols. When the DR is high, this cost difference may be marginal, but when the DR is low, the delta can become very substantial, potentially making dUSD the cheapest stablecoin to borrow in DeFi.
Interest Rate Cycles
dTRINITY's interest rate cycle dynamics are actually opposite compared to real-world cycles controlled by the Fed. This inverse relationship is also common among lending protocols that rely on supply/demand-driven models instead of endogenous mechanisms to artificialize interest rates (e.g., printing USD to buy US Treasuries and suppress rates).
Rising Rates = dUSD 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, expands the dUSD supply and its underlying reserves.
Falling Rates = dUSD 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, contracting the dUSD supply and its underlying reserves to stabilize the peg.
- 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 lenders and 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 all market participant categories 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 | Benefits |
Lending dUSD | Buy-side supply | Liquidity | Collateral | Yield + rewards |
Borrowing dUSD | Sell-side demand | Collateral | Liquidity | Interest rebates |
LP dUSD vs. other assets | Sell-side supply
Buy-side demand | Liquidity | Liquidity | Pool fees + rewards |
For more information, please refer to Yields & Rewards.