> For the complete documentation index, see [llms.txt](https://doc.monetrix.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://doc.monetrix.xyz/how-it-works/architecture.md).
# Protocol Architecture
When you mint USDM, your USDC doesn't sit idle. It's deployed into a delta-neutral portfolio on Hyperliquid. Here's the plain-language flow.
## The flow, at a glance
1. **You deposit USDC** → the Monetrix Vault receives it.
2. **The vault buys spot assets** (e.g. BTC, ETH) as backing.
3. **The vault opens short perpetual positions** equal to the spot, so price moves cancel out.
4. **The protocol earns** funding, lending interest, maker rebates, and optional HLP returns.
5. **Earnings flow into sUSDM's value**: if you've staked, your sUSDM becomes worth more USDM.
## Who's managing what
All of the above happens inside on-chain contracts on Hyperliquid. No off-chain server, no custodian, no manual operator. The two contracts you interact with directly:
* **`MonetrixVault`**: handles mint, redeem, and the protocol's positions.
* **`sUSDM`**: handles staking, unstaking, and yield distribution through its exchange rate.
Everything else (rebalancing, ADL defense, HLP allocation) runs automatically from contract logic.
## What that means for you
* You can **verify the protocol's position health on-chain** at any time. No "trust us" required.
* If Hyperliquid itself is up and functioning, the protocol can function. There's no third-party exchange in the path.
* The worst-case failure mode is a Hyperliquid-level issue or a smart contract bug, both of which are visible on-chain.
For the mechanics of how yield is generated, see [Delta-Neutral Strategy](/how-it-works/delta-neutral-strategy.md).
---
# Agent Instructions
This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com.
## Querying This Documentation
If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.
Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter:
```
GET https://doc.monetrix.xyz/how-it-works/architecture.md?ask=&goal=
```
`ask` is the immediate question: it should be specific, self-contained, and written in natural language.
`goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.
Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.