xUSD is a yield-bearing stablecoin developed by Overnight Finance that is pegged 1:1 to USD Coin (USDC). The asset is designed to provide holders with passive income through a daily rebase mechanism that automatically increases the number of tokens in their wallets. It is fully collateralized and offers native cross-chain compatibility via Chainlink's Cross-Chain Interoperability Protocol (CCIP), enabling continuous yield generation across multiple supported blockchains. ^[1]​

Overview

xUSD was created by Overnight Finance to offer a stable, dollar-pegged digital asset that automates the process of earning passive income. Unlike many DeFi instruments that require users to stake, lock tokens, or manually claim rewards, xUSD generates yield for individuals simply by being held in a compatible web3 wallet. The protocol aims to provide a consistent APY of 8-12%, distributed through daily payouts. The core of its functionality lies in its rebase mechanism, which adjusts the token's total supply to distribute profits generated by its underlying collateral. This results in a direct increase in each holder's token balance.

The asset's collateral is managed through a diversified portfolio of low-risk, delta-neutral DeFi strategies intended to generate sustainable "real yield" that is not dependent on inflationary token rewards. These strategies are primarily executed on established DeFi protocols. The project's vision is articulated in its introductory materials, stating: "As you go about your day, your xUSD balance grows automatically, reflecting real-time yields from our carefully curated DeFi strategies. There’s no need to stake, lock, or actively manage your position — your wallet balance increases daily while maintaining perfect dollar parity."

A key architectural feature of xUSD is its design as a single, unified asset across multiple blockchains. It leverages Chainlink's CCIP to enable seamless cross-network transfers. Users can mint the token on one chain, such as Arbitrum, and move it to other supported chains without interrupting the daily yield accrual. This interoperability is designed to give users flexibility to operate within various DeFi ecosystems while maintaining the token's core function of passive income generation. ^[2]​

Technology and Mechanism

Yield Generation and Rebase

The core of xUSD's yield distribution is its rebase mechanism. This system adjusts the circulating token supply to distribute profits generated by the underlying collateral. When the value of the collateral backing xUSD grows, the protocol executes a positive rebase, which algorithmically increases the number of xUSD tokens in every holder's wallet. This process runs daily and automatically, ensuring yield is delivered passively and in real time, with no user action required. ^[1]​

Conversely, if the collateral's value fell below 100% of the circulating tokens' value, a negative rebase could occur, reducing holders' token balances. The protocol has an insurance mechanism designed to mitigate the initial impact of such events. This passive yield model is designed to be more user-friendly than traditional yield farming, which often involves complex steps such as staking, liquidity provision, and manual reward claiming. ^[1]​

Collateralization and Strategy

xUSD maintains a 100% collateralization ratio, with its backing assets stated to be immediately convertible into USDC to ensure its 1:1 peg. The yield is generated by deploying this collateral into a diversified portfolio of strategies. The protocol's collateral and its performance can be monitored in real time via a dedicated page on the Overnight Finance application.

The investment strategies include:

• Primary Strategy: Delta-neutral strategies developed by Overnight using the Sper protocol. These typically involve holding a spot asset, such as ETH, while simultaneously hedging the position with a corresponding short on a perpetual futures contract. This approach is designed to neutralize market volatility and earn funding rates, which are periodic payments exchanged between traders holding long and short positions.
• Secondary Strategies: To further diversify, collateral is also allocated to other low-risk activities, such as depositing stablecoins into established lending protocols like Aave and providing liquidity to stablecoin-to-stablecoin pools on decentralized exchanges like Uniswap V3.

These strategies are managed within a conservative risk framework that includes diversification across multiple strategies and chains, along with regular portfolio rebalancing to adapt to changing market conditions. ^{[1] [2]}​

Cross-Chain Interoperability

xUSD is natively designed for cross-chain functionality, a feature powered by Chainlink's Cross-Chain Interoperability Protocol (CCIP). This technical foundation allows xUSD to exist as a single, fungible asset that can be moved seamlessly across different supported blockchains. According to the development team, this capability is central to the token's design, as stated: "Built on Chainlink CCIP technology, xUSD seamlessly flows across networks while continuously generating yield."

Users can mint xUSD on its initial chain, Arbitrum, where gas costs are typically lower, and then transfer the tokens to other integrated networks. The rebase mechanism remains active regardless of which chain the tokens reside on, ensuring uninterrupted yield generation. This architecture provides holders with the flexibility to use xUSD across various DeFi applications in the broader ecosystem without sacrificing its primary benefit: passive income. ^{[2] [3]}​