# USP
**USP** is a synthetic dollar protocol backed by real-world institutional-grade private credit, alongside a globally accessible savings asset, **sUSP**.
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Pareto's USP is **not** the same as a fiat stablecoin like USDC or USDT. USP is a synthetic dollar, backed by on-chain credit lines. This means that the risks implicated by interacting with USP are inherently different.
Please refer to the [Risks](https://docs.pareto.credit/product/usp/risks) section for an overview.
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### USP
Users mint USP ([ERC-20](https://ethereum.org/en/developers/docs/standards/tokens/erc-20/)) by depositing stablecoins, e.g. USDC, USDS, into the `ParetoDollar` contract. The contract mints USP and deposits the underlying assets into [Credit Vaults](https://docs.pareto.credit/product/credit-vaults). Credit Vaults lend assets to institutional players that perform yield strategies to generate yield later distributed to USP stakers, i.e., sUSP holders (`ParetoDollarStaking` contract). A small percentage of total funds can be deposited also in [ERC-4626](https://ethereum.org/en/developers/docs/standards/tokens/erc-4626/) compliant yield sources to process redeems faster.
The [allocation](https://docs.pareto.credit/product/usp/allocation) of funds for each credit vault is determined by a board that operates through the `ParetoDollarQueue` contract.
Benefits
USP offers the following benefits:
* **Composable**: USP is a transferable, permissionless asset that integrates across DeFi and CeFi, streamlining capital deployment, risk management, and settlements
* **Capital efficient**: Minted 1:1 against major stablecoins, USP is deployed into a diversified portfolio of liquid, short- and long-term credit, balancing liquidity and yield
* **Protected**: USP holds senior priority in the capital stack and is shielded by a [peg stability reserve](#peg-stability-mechanism) that provides an additional buffer against defaults and market stress
Aquisition
The acquisition of USP happens either through the USP contract or in a permissionless way through AMM pools. Users can:
* **Acquire USP permissionlessly** using external AMM pools with assets such as USDT or USDC
* **Mint USP directly** by depositing stablecoins (USDC, USDS)*,* subject to clearing users' verification checks
* **Redeem USP directly** by burning the token and receiving backing assets*,* subject to clearing users' verification checks
### sUSP
Once USP is staked into sUSP, users can earn yield from the interest generated by [Credit Vaults](https://docs.pareto.credit/product/credit-vaults). The interest paid is reflected in a higher sUSP price than the plain USP effectively creating an interest-bearing token. sUSP's yield is also boosted by non-staked USP, for which the collateral will still be used by Credit Vaults, but receive no interest that instead is distributed only to USP stakers. Stake USP is not rehypothecated in any way and just stays in the contract.
Benefits
sUSP offers the following benefits:
* **Yield generating**: sUSP, designed for stable, risk-adjusted returns, allows users to earn yield from Credit Vaults and participate in Pareto’s long-term growth
* **Liquid**: sUSP is fully liquid and non-custodial. Holders can exit at any time by simply unstaking, without lockups or withdrawal restrictions
* **Diversified**: sUSP provides exposure to a broad set of credit lines reducing single-counterparty risk through structured diversification
Acquisition
* **Stake and unstake USP** through [Pareto's app](https://app.pareto.credit/) to receive rewards from Credit Vaults revenue.
### Peg stability mechanism
USP is backed 1:1 with funds lent to institutional players. If one of the borrowers fails to deliver the funds back to the vaults, sUSP holders will cover the losses by having their conversion price to USP reduced to keep the peg for USP stable (a Stability Fund has been created to provide a buffer before slashing sUSP holders).
* If the USP price is above $1, verified parties can mint USP by depositing stablecoin collaterals moving its price back to $1.
* If the USP price is below $1 then verified parties can buy USP in the market, request a redemption, and receive stablecoins collateral after waiting the cooldown period, if any.