Debt, Minting, and Burning Explained
- Active debt is your share of the global debt pool. It is not static; it changes with the composition of the debt pool. View the current debt pool composition at https://staking.synthetix.eth.limo/debt/overview.
- Issued Debt is the initial value of sUSD issued when you stake SNX.
- Minting is the process of producing sUSD by locking SNX as collateral (staking)
- Burning is the reverse of minting, destroying sUSD and removing debt from the system.
- Burning increases your C-Ratio, which enables rewards to be claimable and SNX to be transferrable.
Minting - Creating synths (sUSD) with an associated debt obligation collateralized by SNX.
Minting creates sUSD when staking SNX
Burning - Destroying synths (sUSD) and reducing the equal value on an associated debt obligation. Unstakes SNX and burns sUSD.
A staker cannot claim their epoch rewards if their account c-ratio is under the target c-ratio. In this scenario, they'd burn sUSD to increase their c-ratio
On the flip side, if a staker's c-ratio is higher than the target c-ratio through an epoch snapshot, they are not using their SNX collateral to its full potential as some SNX are not being used/staked for collateralizing. In this scenario, an SNX staker would mint sUSD by staking more SNX
Active debt is a stakers debt owed to the global debt pool, represented in USD. When sUSD is minted (and SNX staked), issued debt is given to the stakers account in sUSD. Active debt is a dynamic variable, constantly changing with the movements of the global debt pool.
As traders are profitable, the global debt pool increases in value, as does the active debt of stakers. As traders are less profitable, the global debt pool decreases in value, alongside active debt.
Let’s look at a practical example:
- You are responsible for 1% of the debt pool; the overall debt pool is 100,000. Your current active debt is 10,000
- If traders are profitable and the debt pool is now worth 200,000, your active debt is $20,000
- If traders aren’t profitable and the debt pool is now worth 50,000, your active debt is $5,000
Now, look at the actual SNX Debt Pool at a particular time. Please do not rely on this image for debt-hedging as it constantly changes.
Active debt represents the stakers’ share of debt pool obligation. Do not ignore this variable. You must eventually repay this debt to unlock your SNX collateral.
Debt hedging strategies that mimic the overall debt pool are a stakers’ safest way to ensure their active debt keeps in line with their issued debt. Interested in automatic hedging? dHEDGE, a Synthetix partner, just released a one-click debt hedging solution on Optimism. Read more.
Last modified 1mo ago