# How USD\* works

USD\* is fully collateralized by a diversified portfolio of yield-generating assets and positions.\
Currently, yield is sourced from three main categories:<br>

* [**Delta-neutral hedged positions** ](https://perena.gitbook.io/perena/products/usd-star-usd/yield-strategies/delta-neutral-strategy)on centralized and decentralized exchanges (e.g., BTC, ETH, SOL)
* [**Secured borrow-lend market positions**](https://perena.gitbook.io/perena/products/usd-star-usd/yield-strategies/secured-lending-positions) involving on-chain stablecoins
* [**Stablecoins**](https://perena.gitbook.io/perena/products/usd-star-usd/yield-strategies/stablecoins) **and Tokenized assets** such as USDC and USDT

\
All USD\* holders share proportional exposure to the performance of the aggregated portfolio. Yield is auto-compounded into the value of each token — no staking or claiming is needed.<br>

#### Strategy Pools

Yield is generated by actively managed **strategy pools**, each corresponding to a distinct type of asset or yield source. These include:

* **Token reserves**: e.g. idle USDC/USDT
* **Lending positions**: on-chain borrow-lend protocols
* **Hedged strategies**: e.g. delta-neutral positions capturing funding rates

These strategy pools are modular and continuously rebalanced to optimize for risk-adjusted returns.<br>

#### How Yield Is Tracked

The system uses an **internal accounting model** to calculate the Net Asset Value (NAV) of the overall USD\* portfolio. This ensures that:

* Each USD\* token reflects its fair share of the yield
* Users do not need to interact with individual strategies

As a result, users simply hold USD\* in their wallet while the system handles yield generation and rebalancing in the background.

#### The yield earned by a USD\* holder is proportional to their share of the total USD\* supply and the total yield distributed during the holding period.

$$
\text{Holder's Yield} = \frac{\text{Holder's USD\* Balance}}{\text{Total USD\* Supply}} \times \text{Yield Distributed During Holding Period}
$$

#### Minting and Redemption

* **Minting:** Users mint USD\* by depositing accepted tokens such as USDC.&#x20;
* **Redemption:** Users can redeem by redeem USD\* for USDC.
* **Market alignment:** The protocol relies on arbitrage (by the team and whitelisted keepers) to ensure USD\* trades close to NAV. Premiums trigger mint-and-sell actions; discounts trigger buy-and-burn.