Collateralization and Debt Mechanism

Dynamo employs a collateralization and debt mechanism, in which stakers can lock their assets, such as BNB, BTC, as collateral to mint synthetic tokens (synthetic assets). The debt assigned to a staker represents their issued debt amount when minting or burning synthetic assets. The system tracks the debt pool by issuing debt shares to stakers. The debt percentage of each staker is calculated based on their share of total debt shares.

For example, if Alice and Bob both mint 100 dUSD, they would each be issued 100 debt shares, and their debt percentage would be 50% each. As the total value of the debt pool fluctuates, the debt shares are used to calculate the amount of debt that each staker owes. If the debt pool value doubles, Alice, who holds 50% of the debt shares, would then owe 200 dUSD.

To reduce their debt to zero, stakers need to burn a corresponding amount of dUSD. When the required amount of dUSD is burned, the total supply of dUSD is updated and the user's wallet balance is adjusted accordingly. Additionally, the staker's balance becomes transferrable.

This collateralization and debt mechanism ensures that the synthetic assets minted within the Dynamo protocol are backed by sufficient collateral, providing stability and security to the system. By tracking the debt pool and issuing debt shares, Dynamo ensures that each staker takes on their proportional share of the debt, maintaining a balanced and controlled debt distribution.