vUSD is a yield-backed stablecoin, not an interest-bearing loan token. Its yield is derived directly from the staking yield of the vTokens (such as vDOT) used as collateral in the borrowing system.

The key idea is that each vUSD is backed by more staking value than its own face value, and the staking yield generated by that excess value is shared between:

• vUSD holders
• vToken collateral positions

vUSD is minted with a minimum collateralization ratio of 150%. This means that 👇

• Every $1 of vUSD debt is backed by at least $1.50 worth of vDOT
• The system therefore manages $2.50 of total economic value per $1 of vUSD

Yield Distribution Logic

$\text{Yield}(vUSD)=\frac{V_{vUSD}}{V_{vUSD}+V_{vDOT}}$

At the minimum collateralization ratio, with no price changes in vDOT:

$\text{Yield}(vUSD)=\frac{1}{2.5}=0.4$

Whereas if vDOT price changes, the ratio will be calculated such that the total minted vUSD doesn’t exceed:

$collateralAmount * LTV$

where

$collateralAmount = NumberOfCollateralTokens * V_{vDOT}$

Example of Yield cycles:

Initial State