When users repay their USDXL debt or undergo liquidation, the USDXL tokens are burned by the protocol, effectively removing them from circulation.

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Repaying USDXL

The repayment process involves several automated steps:

Repays

Principal

Interest

User

USDXL

Burn

Treasury

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How Repayment Works

When repaying USDXL, the protocol performs:

  1. Smart contract-based collateralization checks
  2. Token transfer from user to protocol
  3. Burning of repaid USDXL
  4. Interest distribution to treasury

Unlike traditional assets where interest is split between suppliers and the protocol, USDXL’s unique design means:

  • Principal amount is burned
  • Interest payments go directly to the HypurrFi DAO treasury
  • No supplier payments needed

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Example Repayment Scenario

Let’s walk through a typical repayment:

  1. Initial State:

    • User has 1000 USDXL debt tokens
    • Debt grows to 1010 USDXL (1000 principal + 10 interest)

  2. Repayment Process:

    • User approves HypurrFi Protocol to use their USDXL
    • User initiates repayment
    • 1000 USDXL (principal) is burned
    • 10 USDXL (interest) transfers to treasury
    • Debt tokens are burned

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Liquidations

USDXL positions can be liquidated like any other asset in HypurrFi when they become unhealthy.

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Liquidation Process

When a position becomes eligible for liquidation:

  1. Liquidators can repay up to 50% of the outstanding borrowed amount
  2. They receive collateral at a discount
  3. The difference (liquidation penalty) serves as their incentive

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Avoiding Liquidation

Users should:

  • Monitor their health factor
  • Maintain it above 1.0
  • Add collateral when needed
  • Repay debt to improve position health

Key factors affecting liquidation risk:

  • Market price fluctuations
  • Collateral value changes
  • Health factor movements

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Protection Strategies

  1. Maintain Safe Ratios

    • Keep health factor well above minimum
    • Use multiple collateral types
    • Monitor market conditions

  2. Quick Response Options

    • Add more collateral
    • Partially repay debt
    • Adjust position size

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Important Considerations

  • Always maintain a healthy collateral ratio
  • Monitor your health factor regularly
  • Understand how market movements affect your position
  • Have a liquidation prevention strategy
  • Keep some emergency collateral available

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Technical Details

For developers and integrators: