Where rewards come from
sUSDh rewards are paid for by the interest governments pay to borrow dollars. No leverage, no trading, no new tokens printed to pay them.
Two borrowers#
sUSDh lends to other governments, in dollars. When you stake, the dollars behind your USDh are lent to other governments through short dollar bonds. Those governments pay more interest than the US. That interest pays for sUSDh rewards.
USDh lends to the US government. The dollars behind USDh are held in dollars and short US government loans, for safety and ease of exit. USDh holders are not paid interest. Once Hamilton Prizes start, that interest will fund prizes for some holders. See USDh.
How sUSDh rewards work#
- 01You stake USDh
- 02The dollars behind it are lent to other governments
- 03They pay interest
- 04A reward rate is approved on the blockchain
- 05The sUSDh price rises
Which governments#
sUSDh lends to governments such as Egypt and Bahrain. Today the reserve holds Egypt. Bahrain is being added. The list can change. The bonds held right now are in the app, on the Transparency page, under sUSDh.
sUSDh lends only in US dollars. So there is no currency risk: a government can’t repay you in a currency that has fallen.
Why it pays more, and the risk#
Other governments pay more than the US because lending to them carries more risk. That extra interest and that extra risk are the same thing, seen from two sides.
- Governments restructure. A country doesn’t go bankrupt. It renegotiates its debts, and lenders usually take a loss. If a government sUSDh lends to restructures, sUSDh takes the loss on that loan. USDh does not.
- Rates move. Bond rates change, so the reward rate changes. Today’s rate says nothing about tomorrow’s.
- Rewards can stop. The rate can be cut or paused at any time, and can be zero.
- Bonds can be slow to sell. In a crisis, government bonds can take longer to turn into dollars than US Treasury bills.
Full list: Risks.