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Burning & Supply Controls​

Supply control is enforced through a smart burn and redemption mechanism. When a user wants to unlock their collateral, they must return both the USP (principal) and the corresponding USI (yield) to the protocol.

Upon redemption:

  • USP is burned permanently
  • USI is marked as redeemed
  • Collateral is unlocked and transferred to the user

This ensures USP in circulation is always backed by active, performing collateral. Burning USP also creates deflationary pressure, especially during periods of high redemptions or low minting.

The protocol can also initiate targeted supply burns using treasury reserves to defend the peg. In extreme cases, global redemption windows can be enabled via governance to unwind positions in an orderly manner.

These controls give the protocol flexibility to reduce circulating supply, maintain peg confidence, and balance long-term monetary policy with short-term liquidity needs.