First-Loss Capital Structure

The OUSD protocol’s first-loss capital structure is anchored by sOUSD, a staked variant of the stablecoin that absorbs initial system-wide losses. By design, this mechanism prioritizes stability and mitigates the risk of sudden liquidity shocks, ensuring the broader OUSD ecosystem remains resilient even under severe market stress.

sOUSD Withdrawal Queue

Rather than relying on static time-locks, the protocol implements a mandatory five-day withdrawal queue for sOUSD. This FIFO (First-In-First-Out) system not only prevents sudden “bank runs,” but also ensures that any losses incurred during the waiting period are fairly distributed among all stakers—including those who are exiting. When a user initiates an unstake, their request is placed in the queue, and they must wait five days before receiving their OUSD. During this window, their sOUSD continues to absorb its share of any negative events, reinforcing sOUSD’s role as genuine first-loss capital rather than simply a yield-bearing token.

Loss Absorption Mechanics

The protocol continuously updates the exchange rate between sOUSD and OUSD to reflect real-time system performance. If a system-wide loss occurs, each sOUSD holder bears a proportional share, including those currently in the withdrawal queue. Formally, this is captured by:

NewExchangeRate = CurrentExchangeRate × (1 - LossPercentage)

LossPercentage = SystemLoss / TotalStakedValue

Here, TotalStakedValue includes all sOUSD positions, pending withdrawals included. By incorporating queued requests into the loss-sharing calculation, the protocol prevents last minute withdrawals that would otherwise leave remaining participants to shoulder an outsized portion of risk.

Emergency Conditions

In periods of heightened volatility or systemic distress, the OUSD protocol’s withdrawal queue continues to function according to its standard rules. All queued requests remain subject to the mandatory five-day waiting period, with no mechanism to accelerate or bypass this process. By maintaining this strict ordering and timeline, the system preserves stability, prevents abrupt liquidity drains, and upholds the integrity of its first-loss capital structure.

Through its combination of orderly withdrawal queues and proportional loss absorption, the OUSD protocol provides a robust defense against cascading failures. The five day withdrawal window is not just a time lock, it is a deliberately chosen interval that balances the need for capital efficiency with the imperative of system security, reinforcing sOUSD’s role as genuine protocol insurance rather than merely a high yield derivative.