Mint Mechanism

Overview

Minting USDh is the process of creating new stablecoins, while redeeming USDh is the process of exchanging these stablecoins for Bitcoin.

How USDh is Created

USDh is minted directly through Hermetica. It is issued on Bitcoin Layer 1 through Runes and Bitcoin Layer 2 through Stacks.

Any registered business or individual in an approved jurisdiction who has completed Hermetica's KYC and AML processes can mint USDh by depositing Bitcoin.

Other users can purchase USDh through open DeFi markets without completing KYC/KYB.

Infrastructure

Overall Process of USDh

All Bitcoin in the protocol is held at institutional-grade custodians Copper and Ceffu.

Their off-exchange settlement (OES) solutions allow Hermetica to mirror funds onto the centralized exchanges trading venues, while holding our assets in a bankruptcy remote Trust off of the exchange's balance sheet.

Hermetica trades on the 4 biggest centralized futures exchanges which represent a total of over $20B in BTCUSD perp open interest. These exchanges are:

1. Binance

2. ByBit

3. Bitget

4. OKX

The short perpetual futures position delta-hedges the BTC in the protocol and locks in the dollar value, which is in turn represented on-chain as USDh.

While we currently use the exchanges listed above, we are always exploring new exchange partners to further diversify our dependencies.

For more information about our use of institutional custodians and OES providers, please refer to the Security Mechanisms section.

Redemptions

The Approved Participants can also redeem USDh directly through Hermetica. Hermetica then unwinds the derivatives position and returns the collateral to the redeeming party.

Redemptions may be temporarily paused if one or more of the following conditions are met:

1. Derivative venue disruption: Material downtime, halted trading, or impaired settlement on the venues used for hedging that prevents safe unwind or rebalance.

2. Liquidity dislocation: Bid–ask spreads or available depth deteriorate to a level where forced unwinds would cause outsized slippage and realized losses for remaining holders.

3. Collateral or oracle integrity issues: Loss of reliable price feeds or custody-layer issues that prevent accurate valuation.

4. Extreme volatility events: Volatility spikes that cause margin requirements or execution risk to exceed predefined safety thresholds.

5. Smart contract or security incidents: Any credible exploit, vulnerability, or abnormal behavior requiring containment.