# MUSD > MUSD is a Bitcoin-collateralized stablecoin designed to maintain a 1:1 peg with the U.S. dollar. Created by Thesis and part of the Mezo ecosystem, it allows use... - Canonical URL: https://iq.wiki/wiki/musd - Categories: Cryptoassets - Tags: Stablecoin, Infrastructure - Created: 2026-04-15T18:46:53.107Z - Last updated: 2026-04-15T18:46:52.000Z - Source: IQ.wiki — the world's largest blockchain and crypto encyclopedia (https://iq.wiki) --- **MUSD** is a decentralized [stablecoin](https://iq.wiki/wiki/stablecoin) designed to maintain a 1:1 [peg](https://iq.wiki/wiki/currency-peg) with the U.S. dollar. It is fully collateralized by [Bitcoin (BTC)](https://iq.wiki/wiki/bitcoin-btc) through a system of overcollateralized loans, also known as collateralized debt positions (CDPs). Part of the [Mezo](https://iq.wiki/wiki/mezo) ecosystem, MUSD allows users to deposit [Bitcoin](https://iq.wiki/wiki/bitcoin) as [collateral](https://iq.wiki/wiki/collateral) to [mint](https://iq.wiki/wiki/minting), or borrow, dollar-denominated liquidity while retaining full ownership and price exposure to their underlying [BTC](https://iq.wiki/wiki/bitcoin-btc). The system operates on-chain using [smart contracts](https://iq.wiki/wiki/smart-contract), ensuring transparency of all reserves and loan positions. [\[1\]](#cite-id-0lYHLtZZ5GBlwrgb)​ ## Overview MUSD is a [Bitcoin](https://iq.wiki/wiki/bitcoin)-backed, dollar-[pegged](https://iq.wiki/wiki/currency-peg) [stablecoin](https://iq.wiki/wiki/stablecoin) created through an overcollateralized lending system. Users deposit [Bitcoin](https://iq.wiki/wiki/bitcoin) as [collateral](https://iq.wiki/wiki/collateral) into a [smart contract](https://iq.wiki/wiki/smart-contract) and [mint](https://iq.wiki/wiki/minting) MUSD against it, maintaining full exposure to their underlying [BTC](https://iq.wiki/wiki/bitcoin-btc) while accessing dollar-denominated liquidity. The [stablecoin](https://iq.wiki/wiki/stablecoin) is designed to track a 1:1 value with the U.S. dollar. The system operates using collateralized debt positions, where each MUSD is backed by [Bitcoin](https://iq.wiki/wiki/bitcoin) reserves and must remain above a minimum [collateral](https://iq.wiki/wiki/collateral) threshold. Stability is maintained through [arbitrage](https://iq.wiki/wiki/arbitrage) mechanisms: if MUSD trades below its [peg](https://iq.wiki/wiki/currency-peg), it can be redeemed for underlying [Bitcoin](https://iq.wiki/wiki/bitcoin); if it trades above its [peg](https://iq.wiki/wiki/currency-peg), new MUSD can be [minted](https://iq.wiki/wiki/minting) and sold into the market. These incentives help keep the price near $1. Interest rates on borrowed MUSD are fixed and determined at the time of [minting](https://iq.wiki/wiki/minting). The system allows users to borrow a significant portion of their[ Bitcoin](https://iq.wiki/wiki/bitcoin) value while requiring overcollateralization to manage risk. [Liquidation](https://iq.wiki/wiki/liquidation) and redemption mechanisms ensure system solvency during periods of volatility. Unlike [fiat](https://iq.wiki/wiki/fiat-money)-backed or algorithmic [stablecoins](https://iq.wiki/wiki/stablecoin), MUSD is fully collateralized by [Bitcoin](https://iq.wiki/wiki/bitcoin) within on-chain [smart contracts](https://iq.wiki/wiki/smart-contract), with transparency into reserves and positions. [\[2\]](#cite-id-Yljv1gWQZWBGeQZq) [\[3\]](#cite-id-LQuhsS0wL2rbqlTr) ![](https://ipfs.everipedia.org/ipfs/QmWxVwdLGKZYcwMps1wsbKYhLuRXJLTHffX8auzw5FdPff) ## Architecture The MUSD system comprises multiple [smart contract](https://iq.wiki/wiki/smart-contract) layers that manage issuance, [collateral](https://iq.wiki/wiki/collateral), liquidity, and system stability. At its core, MUSD is a [Bitcoin](https://iq.wiki/wiki/bitcoin)-backed [stablecoin](https://iq.wiki/wiki/stablecoin) governed by contracts that handle borrowing positions, [collateral](https://iq.wiki/wiki/collateral) storage, and [liquidation](https://iq.wiki/wiki/liquidation) mechanisms, while maintaining a USD [peg](https://iq.wiki/wiki/currency-peg) through overcollateralization and redemption incentives. User positions are created when [Bitcoin](https://iq.wiki/wiki/bitcoin) is deposited into a borrowing contract, which issues MUSD and routes [collateral](https://iq.wiki/wiki/collateral) into dedicated pools. These pools segregate [collateral](https://iq.wiki/wiki/collateral) by state (active, surplus, default, or gas-related reserves). [Collateral](https://iq.wiki/wiki/collateral) is managed through a decentralized custody system built on [tBTC](https://iq.wiki/wiki/tbtc-tbtc) infrastructure, which provides transparent, verifiable [Bitcoin](https://iq.wiki/wiki/bitcoin) backing. Borrowing operates with fixed interest rates set at loan creation, which remain unchanged unless a user chooses to refinance under a new global rate. Interest and fee payments are collected by the protocol and allocated among system maintenance functions, debt-repayment mechanisms, and governance-directed liquidity programs. System stability is maintained through collateralization requirements, liquidation processes, and redemption mechanisms that allow MUSD holders to exchange tokens for underlying [Bitcoin](https://iq.wiki/wiki/bitcoin) value. If [collateral](https://iq.wiki/wiki/collateral) ratios fall below defined thresholds, positions may be liquidated and redistributed to protect overall system solvency. Key system metrics define how debt and [collateral](https://iq.wiki/wiki/collateral) are measured at both individual and protocol-wide levels, including ratios that determine risk, [liquidation](https://iq.wiki/wiki/liquidation) thresholds, and recovery conditions. Overall, the architecture is designed to maintain solvency, enforce overcollateralization, and ensure transparent, rule-based handling of [collateral](https://iq.wiki/wiki/collateral) and debt across all positions. [\[5\]](#cite-id-P6fxwtpYrptgrvjt) ![](https://ipfs.everipedia.org/ipfs/QmbNF9YwoqH8MUUwZiYJc3PSdMHYXgvAWTgnJ4yn912VUQ)