The Quest for Capital Efficiency

Decentralized Finance (DeFi) exists as a global competitive arena where the relentless pursuit of higher yields and capital efficiency dictates the flow of assets. In this environment, the most successful protocols are those that enable the capital to be as productive as possible. Yet, for much of DeFi’s history, a fundamental inefficiency has persisted: the opportunity cost for locked capital. Foundational DeFi protocols often force a binary choice upon users. In a system like Sky (formerly MakerDAO), an asset such as ETH can be locked as collateral to mint USDS, but the underlying collateral itself sits idle, generating no intrinsic yield. It does a single job well: securing a loan. However, this creates a conflict for asset holders who must decide between sourcing liquidity or earning a yield, but rarely can achieve both with the same pool of capital.

To solve this dilemma, a new generation of protocols has emerged throughout the years, engineered to challenge the dominating paradigm. Resupply positions itself at the forefront of this movement, introducing a sophisticated architecture built around a core mechanism: the rehypothecation of yield-bearing assets. The protocol’s central function is to allow users to mint its native stablecoin, reUSD, against collateral that is already earning interest in external, battle-tested lending markets. This design transforms a static asset into a dynamic one, capable of performing multiple functions simultaneously. Resupply thus represents a step forward in the evolution of DeFi primitives, offering an evolved framework designed to dramatically increase the productivity of capital.

The Rehypothecation Engine

The Resupply protocol builds upon the foundational Collateralized Debt Positions (CDP) model pioneered by MakerDAO, but adapts it for a new level of capital efficiency. The key innovation lies in reimagining what could constitute a viable collateral. Instead of relying on more volatile assets, Resupply exclusively accepts stable, yield-bearing derivative tokens. This design choice is fundamental to the protocol’s risk management philosophy, as it aims to mitigate the primary driver of liquidations in other CDP systems - the volatility of the underlying collateral. The process begins when a user deposits an approved interest-bearing token, representing a lending position in an external market like Curve LlamaLend or Fraxlend. Resupply then assesses the collateral’s value and permits the user to mint reUSD up to a predetermined collateralization ratio, to ensure that the position remains solvent. This allows for highly efficient Loan-to-Value (LTV) ratios of 95% across the board, thanks to the collateral price volatility being structurally minimized, allowing up to 20x leverage.

This architecture creates a powerful positive carry flywheel, which serves as the primary engine for protocol adoption. The borrowing rate for reUSD is determined algorithmically, to be consistently lower than the yield being generated by the user’s underlying collateral. Resupply achieves this through an elegant formula. The Annual Percentage Rate (APR) for borrowing is set as the greater of three values: half of the lending rate earned on the collateral, half of a designated “risk-free” rate (such as the yield on staked frxETH), or a floor rate of 2%. This structure is explicitly designed to ensure the cost of borrowing is lower than the yield generated, creating the positive carry that makes leveraged strategies consistently profitable. 

The user not only gains access to fresh liquidity in the form of reUSD, but also earns a net positive return on the entire position. This incentive structure is designed to attract capital seeking to maximize returns through advanced yield-stacking strategies.

Governing the whole system is the RSUP token, which grants holders onchain voting power and a share of protocol revenue. Governance participation and its rewards are deeply intertwined. To exercise their voting power, holders must stake their RSUP tokens. This action not only allows them to influence the protocol's direction, but also entitles them to a direct share of its success. Protocol revenue, collected from borrowing interest and redemption fees, is distributed to these stakers in the form of the reUSD stablecoin, creating a powerful feedback loop where governors are directly incentivized to foster the long-term health of the platform.

Beyond governance, the tokenomics include a direct incentive for the protocol's primary users: the borrowers. A portion of RSUP tokens is allocated as emissions to users who mint reUSD. This distribution is designed to directly correlate with the revenue a borrower’s position generates for its specific lending pool. Higher-yielding collateral pools that contribute more revenue to the protocol are allocated a greater share of RSUP emissions. This creates an incentive for users to borrow against the most profitable pools, boosting liquidity where it is most effective for the protocol’s growth, thus being a key tool for attracting and retaining the essential deep liquidity.

Resupply's strategic alignment is further reinforced by its origins as a sub-DAO of Convex Finance and Yearn Finance. This lineage provides a symbiotic integration within those mature ecosystems, creating a natural user base and ensuring its relevance at the forefront of DeFi.

The Architecture of Collateralization Stability

Resupply’s goal to maximize the yield is directly tied to its sophisticated approach to managing risk, beginning with its approved collateral. The stablecoin-on-stablecoin model is a core feature. By collateralizing a stablecoin loan (reUSD) with derivatives of other stablecoins (like crvUSD or frxUSD), the protocol structurally minimizes the risk of liquidation due to market volatility. This stands in contrast to the constant threat faced by borrowers in volatile assets-backed systems, where a sharp downturn in market direction can trigger a cascade of liquidations. To maintain transparency, Resupply’s smart contracts continuously assess the value of the deposited collateral, factoring in the accrued yield from external platforms. This provides users with a clear, real-time view of their position’s health.

However, this architecture's strength is predicated on the integrity of its external dependencies. The protocol's reliance on oracles to price its complex, yield-bearing collateral introduces a layer of Oracle Risk; any manipulation or failure of these external data feeds could be exploited. More fundamentally, Resupply's model creates a systemic contagion risk. Its health is not self-contained but is a direct function of the security and stability of its integrated partners like Curve and Frax. A smart contract exploit or a major de-pegging event in an underlying protocol would immediately cascade into Resupply, presenting a critical long-term risk vector that needs to be managed.

The stability of the reUSD peg is engineered through a multi-layered system, with the communal redemption model at its center. This mechanism allows any holder of reUSD to redeem it at any time through the protocol for approximately one dollar’s worth of the underlying collateral, creating an arbitrage opportunity that enforces a hard price floor. What makes this model unique is its “socialized” nature. Instead of targeting the single riskiest position for redemption, where it can hurt individual borrowers, as seen in Liquity, Resupply distributes the redemption pressure across an entire collateral pool. This is governed by a dynamic fee structure - the 1% fee is split: 0.2% is retained as protocol revenue, while the remaining 0.8% is credited to the borrower whose collateral was used, creating a small benefit for them. To ensure fairness, the protocol also incorporates a "weighted discount" system that incentivizes redemptions against pools that have gone the longest without being targeted, preventing any single pool from being perpetually focused.

Serving as the final pillar of this architecture is the Insurance Pool, a dual-purpose backstop for the entire protocol. Its first function is to act as an active, market-driven liquidator. The protocol provides robust incentives for this role; Insurance Pool stakers deposit their reUSD and, in exchange for underwriting the protocol's debt, receive a share of its revenue in reUSD as well as RSUP token emissions. This capital is then used to liquidate any undercollateralized positions, proactively maintaining the health of the system's loan book.

Its second, more critical function, is to serve as a systemic buffer. The Insurance Pool is designed to absorb bad debt from extreme market events, and in such a scenario, the stakers' capital is the first line of defense. Their deposited reUSD can be automatically slashed to make the protocol whole, ensuring its long-term solvency and resilience against black swan events.

To further expand these defenses, Resupply has recently launched Savings reUSD (sreUSD), a product designed to grow reUSD demand and reward long-term holders. Deployed as an auto-compounding ERC-4626 vault, sreUSD introduces a dual-yield mechanism for its depositors. It not only captures a baseline percentage of all protocol revenue, but also benefits from a novel, dynamic interest rate system.

This system is engineered to actively support the peg. When the market price of reUSD tracks below $1, the protocol’s borrowing rates will automatically increase. The additional revenue generated from this off-peg state is channeled exclusively to sreUSD stakers. This creates a powerful, reflexive loop: a depeg event increases the sreUSD yield, incentivizing market participants to buy reUSD and deposit it into the vault. This will drive new demand and create buying pressure that will help restore the peg, all while rewarding the users who contribute to its stability.

You can track historical data for the sreUSD stablecoin on Stablewatch.io.

Forging Resilience Through Crisis

In June 2025, the Resupply’s resilience was put to a test. The incident was a result of a subtle bug in a specific protection mechanism, which was unfortunately missed during audits. While the protocol had code intended to prevent well-known “donation attacks,” this bug rendered the protection ineffective for a newly deployed, empty market pool. This allowed an attacker to manipulate the price calculation before the vault was seeded with liquidity. It is critical to note, however, that the exploit targeted this specific implementation flaw in a new, isolated market, not a broader vulnerability in the core, battle-tested architecture that secures the main collateral pools.

The strength of a protocol is often best measured by its response to a crisis, and here Resupply demonstrated notable transparency and resolve. The team and DAO acted swiftly to contain the issue by pausing the affected market, preventing further losses. A comprehensive recovery plan was formulated and put to a governance vote, successfully protecting the protocol’s solvency and ensuring its continued operation. As of today all of the bad debt caused by the hack has been cleared. Importantly, the incident served as a catalyst for learning and growth. It led to the implementation of a far more rigorous Secure Market Deployment Framework, mandating comprehensive audits, minimum initial liquidity requirements, and phased rollouts for all new markets. This experience, while challenging, ultimately forged a more robust and secure protocol, with hardened governance processes prepared for the future.

A New Primitive for DeFi Yields

Resupply stands as a pioneering force in the endless quest for improved capital efficiency. Its powerful contributions to the DeFi landscape are clear: a highly effective rehypothecation model that unlocks new layers of productivity from assets; an evolved and inherently low risk CDP design built on a stablecoin-on-stablecoin foundation; and a sophisticated, multi-layered architecture engineered for stability and resilience. By intelligently leveraging the yield-bearing nature of modern DeFi, the protocol offers a compelling new primitive for sophisticated users and capital allocators.

The journey of innovation is rarely without its trials, but by navigating a significant challenge and emerging with hardened security and a proven, resilient design, Resupply has demonstrated its capacity for maturation. With new additions like Savings reUSD set to further enhance its economic stability, the project shows a clear commitment to ongoing refinement. As DeFi evolves, Resupply stands out as a key protocol for those looking to make their capital work harder.