Anzen USDz Dual Liquidity System

One of Anzen’s core objectives is to provide a reliable pathway to convert USDz back to USDC. While liquidity is one of the toughest challenges in DeFi, we’ve designed a system that allows users to exit with minimal friction, while enabling the protocol to still generate consistent yields in both bull and bear markets. Here’s how it works.

Dual Liquidity System: Continuous and Periodic Redemption

USDz operates with a dual liquidity system to service both continuous and periodic redemption. For continuous redemption, protocol yield incentivizes liquidity providers (LPs) to deposit into USDz-USDC concentrated liquidity (CL) pools on decentralized exchanges like Aerodrome. These pools provide a permissionless way to sell USDz at market prices. These prices may reflect a small illiquidity discount, or trade at a premium to the collateral backing, depending on the supply and demand of USDz and sUSDz.

The CL pools are a foundational requirement for lending/borrowing platforms like Morpho and Contango. They are also critical for enabling USDz and sUSDz to serve as collateral in broader DeFi ecosystems, such as trading perpetuals, meme coins, or leveraged looping strategies. These pools make it possible for users to deploy their assets efficiently and dynamically across various DeFi use cases, amplifying their utility and composability. Liquidity pool depositors earn APY through rewards and trading fees, providing on-demand liquidity that allows users and liquidators to exit positions without delay.

However, market conditions are inherently volatile and unpredictable. Supply and demand can shift based on factors like macro trends, competing yields, or crypto sentiment. This volatility can temporarily imbalance the pools, creating the potential for slippage.

That’s where the protocol rebalancing mechanism comes in. Users who want to skip the DEXs and redeem USDz for USDC at a 1:1 rate can enter a buyback queue. On a scheduled date each quarter, the protocol will divest assets and buy back USDz directly from users at a pegged rate, burning the redeemed tokens. This periodic redemption acts as a safety valve, restoring balance to the system and ensuring the protocol fulfills its promise of liquidity under any market condition. The frequency of this mechanism can be increased depending on available liquidity.

The Role of veANZ in Redemption

Permissionless access to CL pools means users can always exit USDz positions at market prices on DEXs. However, participating in a no slippage buyback requires veANZ, the protocol’s governance token. Specifically, users must hold an amount of veANZ equal to 1% of the USDz position being sold and must hold through the end of the buy back period. For example, a user who deposits 1,000,000 USDz into the buyback queue must hold $10,000 worth of veANZ (based on 7 day VWAP) to sell 1,000,000 USDz for 1,000,000 USDC with no DEX price impact. If there is limited liquidity available, orders will be filled based on veANZ balance and then first to last in chronological order.

In this model, any veANZ holder can become a permissionless market maker, contributing to a decentralized, resilient liquidity infrastructure. By holding veANZ, LPs and arbitrageurs gain the ability to profit from market inefficiencies while being aligned with the protocol. The veANZ stake ensures that those profiting from arbitrage opportunities also have a vested interest in the protocol’s long-term success. This alignment reinforces a virtuous cycle: as market makers extract arbitrage profits, they also help maintain tighter spreads and deeper liquidity, benefiting the entire ecosystem.

The next upcoming dates for protocol buyback will be January 7 and March 10, 2025 via smart contract.

Why This Design?

Our goal is to balance two competing needs:

• Maximizing Yield: The private credit backing USDz generates consistent, attractive yields. To optimize performance, the portfolio should remain as fully invested as possible. Liquidity held in reserves earns only low, risk-free yields, which, while safe, are neither competitive nor differentiated. By allocating more capital to private credit, we unlock higher yields, with the tradeoff that the underlying assets must be held for a longer period of time in order to earn those yields
• Ensuring Liquidity: Users need confidence that they can sell USDz back to USDC at a reasonable rate. The dual liquidity system achieves this through a combination of CL pools and quarterly buybacks. CL pools provide immediate, permissionless liquidity for everyday trades, while quarterly buybacks ensure that large, planned redemptions can occur at a pegged rate.

This design draws inspiration from the best practices of long-term investors like endowments, pension funds, and insurance companies. These institutions balance liquidity needs with yield generation by carefully managing their portfolios. We aim to do the same, providing a stable, high-yield product that can stand the test of time.

Looking Ahead

USDz’s rapid growth—over $90M in just six months—means we’re still scaling. As we collect more data on inflows and outflows, we’ll explore ways to optimize the frequency of hard rebalancing and refine the system. However, our core principles won’t change: ensure liquidity, maximize yield, and align incentives.

Anzen is here for the long run. We’re building a protocol designed not just for the next cycle but for the next decade. Through dual liquidity mechanisms and veANZ alignment, we’re building a dependable system designed to withstand the volatility of crypto markets without relying on unsustainable, circular yield schemes.