How Azos Works
Self-Custody and User-Issued Debt
Azos is a non-custodial protocol — your collateral is held in a smart contract that only you control. Azos Finance never takes custody of your assets at any point.
AZUSD is not issued by Azos Finance. When you open a safe and mint AZUSD, you are issuing it yourself against your own collateral. This is a critical distinction: you are the originator of the debt, not a borrower from a centralized lender. The AZUSD you mint represents a liability you personally take on — it must be repaid before your collateral can be unlocked. If you do not repay your debt and your collateral value falls below the liquidation ratio, your position will be liquidated automatically by the protocol.
This self-issuance model means there is no central counterparty, no credit check, and no permission required — but it also means full responsibility for managing your position rests with you.
What is AZUSD?
AZUSD is an Asset Reference Token (ART) — a term drawn from the EU's MiCA (Markets in Crypto-Assets) regulatory framework. Rather than being issued by a central entity and redeemable for fiat currency, AZUSD references the value of the basket of regenerative assets held as collateral across the protocol. Azos is designed with MiCA's ART principles in mind, including overcollateralization, transparent reserve composition, and decentralized governance.
AZUSD is:
- Overcollateralized: Every AZUSD in circulation is backed by more than $1 of collateral at all times
- Not redeemable for fiat: AZUSD is not a claim on fiat currency held by any issuer — it is redeemable against the collateral in your own safe
- User-issued: Minted by users, not by Azos Finance
- A liability, not a deposit: When you mint AZUSD, you owe it back to the protocol
Because AZUSD is user-issued and not issued by a centralized payment institution, it is not designed to be a "payment stablecoin" as defined under the US GENIUS Act, which targets fiat-denominated instruments issued by a single centralized entity for payment purposes. There is no single issuer of AZUSD to regulate under that framework.
Azos is a direct fork of the HAI protocol, which itself descends from Reflexer's RAI and MakerDAO's DAI architecture — a lineage of battle-tested, decentralized, collateral-backed stablecoin systems.
Stability Fee
The stability fee is the annualized interest rate charged on your outstanding AZUSD debt. It is not paid upfront — instead, it accrues continuously and is settled when you repay your position.
How It Is Calculated
Azos inherits the accumulated rate mechanism from HAI/GEB. Every block, a rate multiplier is applied to all outstanding debt. Over time this compounds, meaning your debt grows slightly each block even if you take no action. When you repay, you must repay the original AZUSD minted plus all accrued fees.
Example: If you mint 1,000 AZUSD at a 5% annual stability fee and hold the position for one year, you will owe approximately 1,050 AZUSD at repayment. The extra 50 AZUSD represents the accumulated stability fee.
The per-block accrual means fees are precise and continuous — there are no monthly billing cycles or manual fee assessments.
Risk Management System
Collateral Ratios
Each collateral type in Azos has specific safety requirements:
- Safety Ratio: The point at which a user can no longer borrow additional AZUSD
- Liquidation Ratio: The point at which a position becomes eligible for liquidation
Price Feeds
Collateral prices are updated with a 1-hour delay, giving users time to react to market changes before liquidation risk materializes.
Collateral Parameters
| Collateral | Stability Fee | Safety Ratio | Liquidation Ratio | Liquidation Penalty | Debt Ceiling | Minimum Debt |
|---|---|---|---|---|---|---|
| kVCM | 5% | 150% | 120% | 5% | 60,000 AZUSD | $20 |
| TGN | 5% | 150% | 120% | 5% | 60,000 AZUSD | $20 |
| ETH | 5% | 150% | 120% | 5% | 120,000 AZUSD | $20 |
| USDGLO | 5% | 111% | 107% | 5% | 20,000 AZUSD | $20 |
| HLSP | 5% | 111% | 107% | 5% | 60,000 AZUSD | $20 |
Debt Ceilings
Each collateral type has a maximum amount of AZUSD that can be minted against it, known as a debt ceiling. Debt ceilings are set and adjusted through DAO governance to manage protocol-wide risk exposure and prevent over-concentration in any single asset.
- Once a collateral type has reached the borrow limit, it can apply for a debt limit increase, which will be evaluated by the risk assesment and use of initial funds.
Liquidation Process
When Liquidation Occurs
A safe becomes eligible for liquidation when its collateral value falls below the liquidation ratio for that collateral type.
Liquidation Mechanics
- Seizure: Collateral is automatically seized from the undercollateralized position
- Auction: Assets are sold through a Dutch auction system
- Penalty: A 5% liquidation penalty is applied to the position
- Tip: Liquidators receive gas cost reimbursement plus 25 AZUSD as an incentive
Auction System
- Type: Dutch (descending price) auction
- Duration: 5 days maximum
- Starting Price: Full market value of the seized collateral
- Price Reduction: 0.5% per hour, decreasing linearly until a buyer accepts or the auction expires
- Discount Range: 1–15%
In a Dutch auction, the price starts high and falls over time rather than rising through competitive bidding. This means the first bidder willing to accept the current price wins — rewarding active liquidators who monitor the protocol while still giving the market time to find a fair price before discounts become significant.
System Revenue
Fee Distribution
Stability fees collected by the protocol are distributed as follows:
- 4% — Keeper and oracle rewards, incentivizing reliable liquidations and accurate price feeds
- 21% — Azos Finance, supporting ongoing protocol development
- 75% — DAO Treasury
Emergency Mechanisms
In extreme market conditions, the protocol can mint new AZOS tokens to cover bad debt, protecting overall system solvency.
Governance and Progressive Decentralization
Azos governance is built on Aragon DAO. The DAO is currently live and managed by the Azos Finance multisig with admin support, reflecting the early stage of the protocol's progressive decentralization roadmap.
The AZOS governance token exists but currently has zero circulating supply. As the protocol matures, governance authority will be progressively transferred from the Azos Finance multisig to AZOS token holders. Key protocol parameters — including debt ceilings, stability fees, collateral types, and fee distribution — will ultimately be governed by token holders through on-chain Aragon proposals.
This approach prioritizes protocol security and operational stability during the bootstrapping phase while building toward a fully community-governed system.
Environmental Impact
Azos is purpose-built for the regenerative economy:
- Climate Finance: Supports carbon credits and environmental tokens like kVCM
- Impact Investing: Enables liquidity for climate-positive projects without requiring asset sales
- Regenerative Assets: Prioritizes collateral that benefits people and planet
- Sustainable DeFi: Builds financial infrastructure for the green economy