# USDX Basics

usdx.money manages the issuance and redemption of *USDX*, a synthetic USD stablecoin.

## Peg Stability Mechanism

*USDX* achieves stability in value under all market conditions by implementing an automated delta-neutral hedging strategy on the target assets, thereby offsetting the risk of price fluctuations and ensuring the value stability of *USDX*.

Delta-neutral hedging is a strategy to reduce the impact of market volatility on the value of a portfolio, by establishing opposing investment positions to balance potential price movement risks. In the context of *USDX*, this means if the price of the collateral assets (such as Bitcoin) changes, the program automatically adjusts the hedging positions to maintain the stable value of *USDX*. This strategy is designed to ensure that, no matter how market conditions change, the value of *USDX* remains relatively stable, offering an attractive medium for value storage and exchange for users who wish to avoid the volatility of the cryptocurrency market.

### **Key Information**

1. *USDX* can be acquired by users in permissionless external liquidity pools.
2. Only approved entities from eligible jurisdictions that have successfully passed KYC/KYB screenings and got white-listed can directly mint and redeem *USDX* on-demand using usdx.money contracts. This mechanism intend to mitigate the risks associated with the comingling of institutional funds with those of non-KYCed individuals or entities.
3. The system operates independently of traditional banking infrastructure, with trustless collateral securely held within the cryptocurrency ecosystem. This ensures *USDX* is fully backed by user deposits at all times.
4. Users have the opportunity to exploit cross-market arbitrage opportunity by buying low and sell high, or (subject to white-listing) by minting / redeeming and trading across different markets, such as Pancake or Curve swap pools, in order to take advantage of price discrepancies.

### **Mechanic Example**

1. A user deposits \~$100 of *USDT, USDC* or *USDe* and receives \~100 *USDX* in return less any execution costs to execute the hedge. Slippage and execution fees are included in the price when minting & redeeming. usdx.money earns no profit from minting or redeeming *USDX* from users accessing the product.
2. The assets received are transferred to an "Off Exchange Settlement" provider. Backing assets remain on-chain and off-exchange servers to minimize counterparty risk.
3. Assets in the Off Exchange Settlement provider will be mirrored onto major exchanges to execute delta-neutral multicoin arbitrage strategies.
4. usdx.money delegates, but never transfers custody of, backing assets to derivatives exchanges to margin the short perpetual hedging position

## Generated Yield

usdx.money generates yield via the funding and basis spread from the delta hedging derivatives positions. The funding and basis spread yield can be floating or fixed depending upon if the protocol uses non-deliverable or deliverable derivatives positions to hedge the collateral's delta. The funding and basis spread has historically generated a positive yield given the mismatch in demand and supply for leverage in crypto as well as the existence of positive baseline funding. If funding rates are deeply negative for a sustained period of time, the usdx.money insurance fund will bear the cost.

## Risks

The protocol is exposed to various risks including but not limited to:

1. Smart Contract Risk
2. External Platform Risk
3. Liquidity Risk
4. Custodial Operational Risk
5. Exchange Counterparty Risk
6. Market Risk

Every element of the usdx.money design has been formulated with risk mitigation in mind, including the use of custodians, absence of underlying leverage, and diversification constraints on hedging positions usdx.money recognizes these risks and actively attempts to ameliorate & diversify these risks as much as possible. In practice, this means we use multiple providers for each step of the workflow and actively monitor all partners and market conditions. usdx.money will also be as transparent as possible by providing proof of backing assets.<br>

## Eligibility for Minting

Institutions, DAOs, and other qualified entities can reach out to the USDX protocol team to inquire and secure minting permissions. This process will involve a thorough evaluation to ensure alignment with protocol objectives and risk parameters, fostering a controlled and trustworthy environment for minting operations.


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