# Suppliers

Suppliers can permissionlessly deposit USDC to mint either USD3 or sUSD3. 

Suppliers can also permissionlessly stake USD3 for sUSD3 (ERC-4626) which gives holders levered yield on the pool of credit lines while absorbing first-losses in the case of defaults, net recoveries. sUSD3 is subordinate debt to USD3 and has a lock period before it can be withdrawn for USDC. sUSD3 redemptions are only possible if there is idle cash in the sUSD3 tranche not being borrowed. sUSD3 supply has a ceiling at the unsecured debt cap. 

In phase 1, USD3 is a fully liquid USDC receipt - no native pool yield. sUSD3 is the junior first-loss yield-bearing asset with a 1-month lock that backstops credit, gates early risk, and accrues all native yield across the pool - both on Aave deposits and unsecured yield. sUSD3 accrues yield during the 1-month lock. In phase 2, USD3 transposes into a senior tranche earning native yield and sharing liquidity according to the tranche ratio, while sUSD3 stays first-loss with the same lock and earns junior yield. 

## Phase 1 — Risk-Off Bootstrap

1. **Backing/Deployment:** USD3 fully backed by Aave/idle reserves; drawdowns unwind Aave.
2. **USD3 Liquidity:** On-demand, limited only by Aave liquidity.
3. **USD3 Yield:** None.
4. **sUSD3 Liquidity:** After a 1-month lock, unused sUSD3 liquidity (sUSD3 TVL - outstanding credit) is redeemable for USD3. Example: $7m sUSD3 TVL − $6m unsecured credit lines = $1m sUSD3 redeemable.
5. **sUSD3 Yield:** Receives 100% net interest in Phase 1 - including Aave yield + unsecured yield. Varies with utilization and losses.
6. **Debt Cap:** Credit ≤ sUSD3 TVL.
7. **Tranche/Waterfall:** Roles implicit (senior liquidity vs junior first-loss); no explicit 85/15 yet.

## Phase 2 — Risk-On

1. **Backing/Deployment:** Pooled credit; Aave only for idle cash.
2. **USD3 Liquidity:** Liquidity up to tranche ratio floor invariant (ex: 85 senior / 15 junior).
3. **USD3 Yield:** Earns native senior yield (plus any residual on idle).
4. **sUSD3 Liquidity:** Still 1-month lock, first-loss.
5. **sUSD3 Yield:** Junior residual after paying the senior rate and fees; higher expected but volatile and subordinated (drawdowns hit sUSD3 first).
6. **Debt Cap:** Can scale up to USD3 TVL.
7. **Tranche/Waterfall:** Explicit 85/15 governs liquidity and interest; losses hit sUSD3 before USD3.

<figure><img src="/files/UulDFBElZzoN0cArd8DQ" alt=""><figcaption></figcaption></figure>

*TVLs are approximate and not reflective of the exact KPIs required to begin phase 2.*


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