The Mechanics of USDx

Minting and Burning

USDx is created by depositing collateral—such as ETH and BTC—into Synthetix’s LP vaults. Users can then mint USDx up to a specific collateralization ratio, ensuring that the stablecoin remains over-collateralized. This process minimizes the risk of under-collateralization during market volatility, providing stability to the platform.

• No Interest Rates: Borrowers of USDx do not incur interest charges, distinguishing it from traditional lending models.

Peg Maintenance

Maintaining the USDx peg at $1 is crucial for its effectiveness as a trading pair within the Synthetix ecosystem. Here's how the peg is managed:

• Above the Peg: When USDx trades above $1, indicating excess demand, arbitrage opportunities arise. Users are incentivized to mint new USDx using Ethena’s stablecoin (USDe) through the Synthetix wrapper and sell it on the open market. This process brings the price back down to $1, similar to MakerDAO’s PSM (Peg Stability Module) model.

• Below the Peg: When USDx trades below $1, reflecting reduced demand or oversupply, users are incentivized to buy discounted USDx to repay their debts and free up collateral. Additionally, Kwenta values USDx at $1 regardless of its market price, creating a buy pressure that helps restore the peg.

The Role of the Wrapper

The Synthetix wrapper is a key mechanism for maintaining the stability of USDx, especially when its price exceeds the peg:

• Arbitrage with the Wrapper: When USDx is above the peg, arbitrageurs can use the wrapper to mint USDx with Ethena’s USDe and sell it, bringing the price back down.

• Wrapper Cap: The wrapper has a limit on how much USDx can be minted through it. If this cap is reached, the Spartan Council votes on whether to raise the limit.