Rebase Mechanism

The USDN protocol is designed to capture yields. When these yields are collected by the vault, the amount of underlying assets increases. Consequently, the dollar value of the USDN token should theoretically rise.

For example, if the vault holds assets worth $100,000 and there are only 80,000 USDN tokens in circulation, the unit price of the USDN token would logically be $1.25. However, to maintain the USDN token's value as close as possible to $1, this model requires adjustment.

This is where the rebase mechanism comes into play: As soon as this value exceeds $1.005, a rebase is triggered automatically, increasing the total supply to bring the price down to $1.0047. These parameters can be adjusted through governance if needed.

What is Rebase?

Rebasing means the protocol increases the total supply of the USDN token in circulation, effectively diluting the unit value of each USDN token. Holders receive an increased number of USDN tokens proportionally, allowing them to benefit from yield generation directly in their wallets without staking their tokens—unlike other solutions, such as Ethena's USDe.

Example

Suppose there are 2,000 USDN tokens in circulation, backed by $2,000 worth of assets in the vault. The price of the USDN token would be $1. Now imagine the underlying assets generate significant yield, increasing their value in the vault to $4,000. The theoretical price of the USDN token would rise to $2.

To maintain price stability, the protocol calculates the new total supply of USDN tokens by multiplying the current price by the existing circulation (2 × 2,000 = 4,000 USDN). The same calculation applies to each wallet holding USDN tokens. For instance, a wallet holding 50 USDN tokens would see its balance double to 100 USDN tokens. Importantly, the dollar value of each wallet remains unchanged. If a user had $50 worth of USDN tokens before the rebase, this value remains the same because the token price adjusts proportionally (2,000 USDN × $2 = 4,000 USDN × $1).

No Debase Mechanism

It is important to note that there is no debase mechanism in the USDN protocol. This means USDN tokens will never be removed from your wallet. Once you hold USDN tokens, the number of tokens in your wallet will not decrease.