Debt, Minting, and Burning Explained

Debt, Minting, and Burning XSYN - A Quick Summary

• Active debt is your share of the global debt pool, which changes with the composition of the debt pool.

• Issued Debt refers to the initial value of xUSD issued when you stake XSYN.

• Minting involves creating xUSD by locking XSYN as collateral (staking), which increases your active debt.

• Burning is the opposite of minting, as it destroys xUSD and removes debt from the system, decreasing your active debt.

• Burning increases your C-Ratio, allowing you to claim rewards and transfer XSYN.

Minting and Burning - A Deeper Explanation

Minting is the process of creating synths (xUSD) with an associated debt obligation, collateralized by SYN.

Burning involves destroying synths (xUSD) and reducing the associated debt obligation by an equal value, unstaking XSYN, and burning xUSD.

A staker cannot claim their epoch rewards if their account C-Ratio is below the target C-Ratio. In this situation, they would burn sUSD to increase their C-Ratio. Conversely, if a staker's C-Ratio is higher than the target C-Ratio during an epoch snapshot, they are not using their XSYN collateral to its full potential, as some SYN are not being used/staked for collateralization. In this case, an XSYN staker would mint xUSD by staking more XSYN.

Active Debt

Active debt represents a staker's debt owed to the global debt pool, expressed in USD. When xUSD is minted (and XSYN staked), issued debt is assigned to the staker's account in sUSD. Active debt is a dynamic variable that constantly changes with the movements of the global debt pool.

As traders become more profitable, the global debt pool increases in value, as does the active debt of stakers. Conversely, when traders are less profitable, the global debt pool decreases in value, along with active debt.

The Importance of Active Debt

Active debt signifies the stakers' share of the debt pool obligation. It is crucial not to overlook this variable, as stakers must eventually repay this debt to unlock their SYN collateral.

Debt hedging strategies that mimic the overall debt pool are the safest way for stakers to ensure their active debt aligns with their issued debt. Interested in automatic hedging? Speak to us today.