Chapter 3 - How does it work ?
DeFi is often full of complex charts, intimidating words, and painful user experiences. But we designed EquitX like we would design a good tool: intuitive, smooth, and transparent, even if what happens behind the scenes is sophisticated.
Let’s break it down using analogies.
Step 1 — Locking Collateral
Analogy: The security deposit 🍿
Picture yourself at the movies. Before handing you a pair of 3D glasses, they ask for a small deposit to make sure you’ll return them. If you bring them back, you get your deposit back, simple.
But they don’t just ask you for their exact price — they ask you for a deposit worth more than the glasses themselves.
Why? Because:
The glasses might break.
Someone could try to walk away with them.
The cinema needs to cover unexpected situations.
In EquitX, it’s the same principle. Before you mint an xAsset (a synthetic asset), you must deposit more value than the asset itself. This is called the collateral ratio.
For example:
To mint $100 worth of synthetic Apple stock (xAPPLE), you may need to deposit $150 or $200 worth of XLM (Stellar's cryptocurrency).
This extra cushion:
Absorbs volatility.
Protects the system.
Ensures every synthetic asset is truly backed.
✅ The deposit is your collateral ✅ The required ratio is your collateralization ratio
Step 2 — Minting xAssets
Analogy: The printing machine 🖨️
With your deposit secured, you’re now allowed to print your synthetic ticket. You can now choose which asset you want to create:
xTSLA (Synthetic Tesla Stock)
xSMALLCAP (Small-cap index)
xGOLD (Synthetic Gold)
Or even a future community-created xAsset
When you mint, you receive an xAsset that:
Tracks the real price of the corresponding asset (via oracles).
Can be held, traded, or swapped just like a real asset.
In short, you just created a digital twin of the asset you wanted — fully backed by your deposit.
💡 It's like printing a voucher that always reflects the price of the asset you wanted.
Step 3 — Trade, Hold, or Use
Analogy: The synthetic ticket is yours 🎟️
Your freshly minted xAsset is like a ticket.
Now you’re free to:
Keep it as an investment.
Trade it on Stellar's DEX.
Use it for DeFi strategies later.
And just like a real ticket:
Its value will go up and down depending on the real asset it tracks.
It can be freely exchanged with anyone.
You’re holding a synthetic representation of the asset,
but you stay in control,
you can trade instantly,
and you avoid the friction of traditional finance.
Since EquitX runs on Stellar:
Your transactions are fast.
Your fees are low.
Your experience stays smooth.
💡 The difference? This ticket lives on-chain, transparently, and without intermediaries.
Step 4 — Burn to Redeem
Analogy: Returning your 3D glasses 🕶️
When you’re done, you can return the synthetic asset to the protocol.
In EquitX, this is called burning.
Once you burn:
Your deposit (collateral) is unlocked.
You get your funds back (minus minimal protocol fees).
Your position is closed.
Simple.
💡 Just like returning your 3D glasses to the cinema to get your deposit back.
⚠️ Step 5 — Keeping your Collateral Ratio Healthy
Analogy: The balance game 🪙
Remember, the cinema only lets you borrow the 3D glasses if you maintain a healthy deposit.
If the value of your xAsset (the 3D glasses) rises sharply, or if the value of your collateral drops (XLM), your collateral ratio might fall below the required threshold.
If that happens, you’re exposed to a risk called liquidation.
💡 Rule of thumb: Keep an eye on your ratio, and you’ll be fine.
Step 6 — The Liquidation Mechanism
Analogy: The automatic refund machine 🤖
If your deposit becomes too small compared to your xAsset:
The protocol will automatically liquidate part or all of your position.
Your xAsset will be returned to the system.
Your collateral will be redistributed (partly to liquidators, partly to the Stability Pool — we’ll get to that in a second).
Liquidation is not designed to punish, but to protect the system from becoming under-collateralized. It keeps EquitX solvent and trustworthy for everyone.
Step 7 — The Stability Pool
Analogy: The insurance fund 🏦
Behind the scenes, EquitX has its own version of an insurance fund, called the Stability Pool.
What does it do? It absorbs bad debt during liquidations.
Every time someone gets liquidated, the Stability Pool steps in to:
Buy the discounted collateral.
Cover the system’s losses.
Keep the platform balanced and solvent.
And here’s the cool part:
You, as a user, can also deposit xAssets into the Stability Pool. In return, you:
Earn liquidation rewards.
Get protocol incentives in $EQTX tokens.
✅ This mechanism incentivizes users to help keep EquitX stable. ✅ It’s like becoming part of the cinema staff, earning a share every time a pair of glasses is returned early.
🔄 The Full Cycle at a Glance:
Deposit collateral
Mint synthetic assets
Trade / Hold / Use
Burn to unlock your deposit
Keep your ratio healthy (or risk liquidation)
Earn extra rewards by participating in the Stability Pool
The full benefits of such a system
It's:
Transparent.
Balanced.
Designed to make synthetic assets safe, simple, and community-sustained.
No hidden tricks. No black box. No need to be a DeFi veteran.
EquitX is built to let you participate in new markets without sacrificing simplicity or security. Why is it so smooth?
Because:
Stellar makes transactions fast and cheap.
EquitX removes the typical friction you find on other synthetic platforms.
The logic is intuitive: Deposit → Mint → Trade → Burn → Withdraw.
So even if you’re not a DeFi pro:
If you understand buying a snack,
If you understand returning a deposit,
You’ll understand EquitX.
Behind the simplicity
Under the hood, EquitX is powered by:
Robust smart contracts.
Price feeds via secure oracles.
An incentive model using $EQTX tokens to reward contributors and users.
But you don’t have to worry about all this now. When the time comes, you’ll know exactly how to go deeper.
In the next section: We’ll show you how you can be part of this whole adventure and revolution.
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