4. Technical Architecture & System Design

4.1. Underlying Blockchain & Infrastructure

Platform Choice:

• USTD is built directly on Terra Classic L1, benefiting from its proven scalability, security, and low transaction fees.

Interoperability:

• CCTP V2 Integration: Integration with Circles CCTP V2 network allows for native cross chain transfers of USDC between multiple blockchains. You can learn more about Circle CCTP V2 network here - https://github.com/circlefin/evm-cctp-contracts/blob/master/whitepaper/CCTPV2_White_Paper.pdf

• IBC Integration: Enables seamless communication and asset transfer between Terra Classic and other blockchains. You can learn more about IBC functionality here - https://ibc.cosmos.network/v8/

• Thorchain/Rujira Integration: Enables native cross chain swaps of multiple assets across multiple chains. You can learn more about Thorchains functionality here - https://dev.thorchain.org/

• Layer 2: UST leverages the Terra Classic Layer 2 infrastructure to further enhance cross chain functionality.

• Optional EVM Compatibility: Future provisions for EVM bridges are considered to extend USTD’s integration with other EVM-based ecosystems.

4.2. Smart Contract Framework

Modular Design - The UST Protocol is composed of four core interconnected modules:

• Minting/Burning Module: Manages collateral deposits, token issuance, and redemptions.

• Yield Harvesting Module: Automates the allocation of collateral to yield-generating liquidity pools.

• Yield Distribution Module: Automates yield distribution between holders and protocol reserves.

• Buyback/Burn Module: Executes market operations to repurchase and burn LUNC & USTC tokens.

4.3. Yield Generation Mechanism

Liquidity Pools:

UST Protocol deploys collateral into stablecoin-to-stablecoin pools on decentralized exchanges (DEXs), where yield is generated primarily through transaction fees and optimized liquidity management.

Automated Harvesting:

Smart contracts continuously monitor pool performance and adjust collateral allocations to maximize yield while mitigating risk.

Importantly, all yield generation processes are hard-coded into the smart contracts and are solely determined by decentralized market dynamics, without any discretionary adjustments or central oversight. This means that yield outcomes are a natural byproduct of liquidity provision, arbitrage opportunities, and other market forces rather than any guarantee made by a central operator.

Harvested yields are automatically split between two primary functions:

• A portion is allocated for direct rewards to USTD holders.

• The remaining portion is reinvested to support buyback and burn operations that help maintain the peg.

4.4. Collateral & Reserve Management

1:1 Backing:

• Every USTD token is fully backed by a corresponding unit of USDC/USDT held in a transparent reserve on Terra Classic L1.

Overcollateralization & Diversification (Future Consideration):

• As the protocol scales, a portion of yield may be allocated to building reserves of decentralized assets (e.g., BTC, ETH) to further hedge against volatility and regulatory risks.

Real-Time Auditing:

• On-chain proofs and periodic third-party audits ensure that collateral reserves are fully verifiable at any given time.

4.5. Security Architecture

Smart Contract Audits:

• USTD’s smart contracts are rigorously audited by leading security firms. Audit reports and remediation actions are made publicly available.

Bug Bounty Programs:

• A comprehensive bug bounty initiative encourages external security researchers to identify vulnerabilities, with rewards offered for confirmed findings.

Formal Verification:

• Critical modules—especially those governing yield harvesting and buyback/burn operations—undergo formal verification to ensure their mathematical and functional correctness.

Fallback Mechanisms:

• Emergency protocols (such as circuit breakers) are integrated to protect user funds during extreme market conditions or unforeseen technical issues.