# How Apyx Works

<figure><img src="/files/KTvY92ECNuTAO5Tiw7Uv" alt=""><figcaption></figcaption></figure>

The Apyx protocol has four core components:

* **Users:** Individuals who interact with the protocol by depositing USDC to acquire apxUSD and, optionally, locking apxUSD to receive apyUSD.
* **Offchain Treasury:** Allocates incoming USDC to acquire a diversified basket of low-volatility, dividend-bearing perpetual preferred shares or highly liquid cash-equivalents. It collects dividend payments and converts the proceeds into onchain distributable yield.
* **Onchain Vault:** Receives yield and distributes it to apyUSD holders over time by increasing apyUSD’s redemption value.
* **Stock Market:** The external market where the protocol acquires the preferred assets or other more liquid backing assets used in the collateral basket.

### Process Flow

#### Minting apxUSD

End users obtain and use apxUSD through secondary markets. Like many other stablecoin projects, whitelisted users deposit collateral and receive newly minted apxUSD.

Any spreads and offchain execution expenses incurred during minting and redemption may be reflected in the price. Apyx generates minimal profit from minting and redemption; costs are limited to what is necessary to operate the protocol and prevent various attacks.

#### Collateral Acquisition

The Offchain Treasury allocates incoming capital to acquire a basket of preferred assets ("Prefs") and short-term treasury bonds. Initially, the basket includes STRC and SATA, with additional assets added over time.

Refer to [Collateral Allocation](/solution-overview/example-collateral-allocation.md) for details.

Acquired Prefs are held in custody in designated accounts, and the Offchain Treasury manages allocation and operations. Since the backing assets are held offchain, Apyx provides regular third-party accounting attestations and transparent reporting on custody and collateral composition so users can independently verify the backing.

Refer to [Custody Overview](/collateral-and-custody/custody-overview.md) for details. Real time visibility into capital deployment and the current reserve position is available in the dApp dashboard.

#### Protocol Rewards Distribution

Dividends from Prefs are collected offchain, converted into apxUSD, and sent to the Apyx Onchain Vault. The vault distributes this yield to apyUSD holders in a stream over a 20 day period.

Users can lock apxUSD in the vault to receive apyUSD. apyUSD represents a locked position that accrues the yield sent to the vault, increasing in redeemable value over time.

Refer to [apyUSD Yield Distribution](/solution-overview/apyusd-yield-distribution.md) for details.

{% hint style="info" %}
The protocol is designed not to rehypothecate or lend deposited apxUSD. apyUSD yield is intended to be sourced from cashflows generated by Prefs.
{% endhint %}


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