Chapter 5 · § 5.1 · Recipe
Three Asset Classes
szUSD senior. szBOND subordinated. SZK absorbs last.
Problem
What classes of holder absorb loss in a resolution event, and in what order?
Solution
szUSD senior. szBOND subordinated. SZK absorbs last.
| Class | Asset | Position |
|---|---|---|
| 1. Senior | szUSD | Dollar-pegged. Made whole first. |
| 2. Subordinated | szBOND | Yield-bearing junior debt. Absorbs second. |
| 3. Equity-shaped | SZK | Protocol token. Absorbs last. |
The order is in code. It cannot be rewritten by governance. The only way to change the order is to fork the chain.
Discussion
The structure mirrors a bank capital stack — depositors, senior unsecured creditors, subordinated creditors, equity. The szBOND instrument exists in part to be a credible loss absorber so szUSD does not have to be the first absorber. A protocol with no junior debt instrument has its dollar-pegged asset as the first absorber by default, which is exactly Terra's failure mode.
✦ Tip
Junior debt is not a marketing feature. It is the mechanism that lets the senior asset stay senior. Without a tranche between the dollar-pegged unit and the equity-shaped token, the dollar-pegged unit absorbs the equity-shaped token's volatility.
See Also
- § 5.2 · Immutable in Code — what makes the order non-rewritable
- Ch. 4 · The GCSR — the ladder that ends in the waterfall
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