# How csUSDL works

### Introduction

csUSDL is a yield-bearing ERC-4626 token that accrues value through real-world interest (T-Bills via USDL) and onchain lending (via Morpho). It is designed to be permissionless, transparent, and easy to integrate across DeFi.

***

### Capital Flow

Here’s what happens when a user mints csUSDL:

1. **Starter Asset** \
   User can start with any asset and swap it to USDL on Cowswap. 
2. **Wrapping to wUSDL**\
   USDL is wrapped into wUSDL — a non-rebasing, ERC-20 token required for compatibility with DeFi protocols like Morpho.
3. **Vault Deposit**\
   wUSDL is deposited into the csUSDL ERC-4626 vault. In return, users receive csUSDL tokens representing their proportional share.
4. **Lending via Morpho Blue**\
   The vault supplies wUSDL to a Morpho market, where it is lent to borrowers against overcollateralized positions using blue-chip assets like wstETH and cbETH.
5. **Yield Accrual**\
   Vault value increases daily from:

   * Daily yield from Paxos’s USDL (T-Bills)
   * Real-time lending interest from Morpho
   * Additional rewards in SHIFT tokens

   Yield is reflected in the rising share price (`convertToAssets()`), not in token balance.

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### Roles

| Partner        | Role                                                                   |
| -------------- | ---------------------------------------------------------------------- |
| **Paxos**      | Issuer of USDL, manages T-Bill reserves, regulated by FSRA (Abu Dhabi) |
| **Morpho**     | Leading lending protocol for onchain lending yield generation          |
| **Coinshift**  | csUSDL distributor, fee recipient, and SHIFT issuer                    |
| **Steakhouse** | Vault curator and risk manager                                         |

***

### Asset Structure

| Token      | Description                      | Yield Source                                        | Behavior      |
| ---------- | -------------------------------- | --------------------------------------------------- | ------------- |
| **USDL**   | Paxos-issued stablecoin          | RWA (T-Bills)                                       | Rebased daily |
| **wUSDL**  | Non-rebasing wrapper for USDL    | RWA (T-Bills)                                       | Accrual token |
| **csUSDL** | Coinshift vault token (ERC-4626) | RWA + DeFi Lending Yield + Morpho and SHIFT rewards | Accrual token |

***

### ERC-4626 Mechanics

csUSDL uses the ERC-4626 standard to abstract away the complexity of yield tracking and accounting:

* **Accrual token**: The price of the asset grows in your wallet as the underlying position earns yield
* **Daily compounding**: T-Bill and lending yield accrue continuously
* **Interoperable**: Designed for seamless use across DeFi

***

### Oracle Structure

The value of csUSDL is calculated using two layers of ERC-4626 pricing:

1. **csUSDL → wUSDL**\
   Calculated via `convertToAssets()` on the csUSDL vault
2. **wUSDL → USDL**\
   Calculated via Steakhouse’s custom ERC4626Feed oracle, reviewed by Morpho and audited by Spearbit (in progress)
3. **USDL → $1.00**\
   Peg is enforced onchain via Morpho protocol and offchain via monthly reserve attestations by Paxos.

Example:\
`1.00 csUSDL = 1.01 wUSDL = 1.02 USDL = $1.02`

***

### Up-Only Share Price

csUSDL does not support redemptions below its underlying asset value. Since both T-Bill interest and lending yield are continuously added to the vault, the token’s share price only moves in one direction: up.

There are no rebases, no staking requirements, and no manual reinvestment. Yield simply accrues into the token itself.


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