Introducing Debt Shares: Simplifying Debt Management and Cross-Chain Tracking Ability

Horizon Protocol
2 min readSep 18, 2023

We’re excited to share some upcoming changes in our Horizon Protocol V2 smart contract testnet. These changes, including Debt Shares, Dynamic Exchange Fees, and a new Liquidation Mechanism, are significant and will enhance the protocol’s stability, scalability, and user experience. They lay the groundwork for the Futures Exchange we have in store.

Over the next three weeks, we will gradually introduce each of these changes, allowing us to delve into their details and explore the benefits of integrating them into Horizon Protocol.

We begin today with Debt Shares. Here’s a quick overview:

What are Debt Shares, and how do they work?

Horizon Protocol keeps tabs on each staker’s debt. However, because the debt register only tracks actions on a single chain, this creates certain issues if Horizon Protocol ever goes multi-chain.

This is why we’re introducing a new concept to Horizon Protocol, called “debt shares.” These are essentially tokens that represent a staker’s debt. How this works is, whenever new zUSD is minted, corresponding debt shares are created as well. The beauty of debt shares is their consistency. No matter how much the global debt pool fluctuates, your debt share always represents the amount you owe.

For example, if you hold 50% of all the shares while the global debt pool is $100, your share means you owe $50. Conversely, if the global debt pool shrinks to $50, your share now represents a debt of $25.

In a nutshell, debt shares simplify debt tracking. It’s a way to keep records of who owes what, designed to work seamlessly, even if Horizon Protocol expands to multiple chains.

Debt shares can be simplified into 3 equations:

  • How much debt shares are issued or burned when minting or burning by a staker:

debt_shares = total_shares * zUSD_amount/total_debt_pool

  • Calculate the debt percentage of a staker how much zUSD they owe:

debt_percentage = balance(user)/total_supply(debtshares)

  • The calculate how much zUSD debt a staker holds:

staker_zUSD_debt = debt_share_percentage * global_debt_pool

Debt Shares’ Benefits

- Provides a way to track staker’s debt using a token.

- Simplifies the system to represent exactly how many debt shares each staker holds instead of a debt ledger.

- Enables staking rewards to be distributed fairly as the debt shares are much easier to keep up to date.

- No more need for snapshotting the debt registry to determine how to distribute the rewards as debt shares will always be available.

- Enables migration of stakers debt across chains in one transaction.

Stay tuned for more updates on our exciting developments!

Horizon Protocol is a DeFi platform that facilitates the on-chain trading of synthetic assets that represent the real economy. Horizon Protocol seeks to provide exposure to real-world assets risk/return profiles via smart contracts on the blockchain.