Debt Scaling (proportional socialization onto issuers)

Mechanism & When It Triggers

Debt scaling in UCE is the protocol’s way to automatically net down allocator debts proportionally when protocol (non-referred) A→0x mints require 0x liquidity. If the user doesn’t provide a referral code (or the caller isn’t an allocator), UCE settles the 0x leg in three steps:

1. Unreserved 0x on-hand is used first.

2. Pro-rata allocator draw kicks in for any remaining amount: each indebted allocator contributes from its reserved 0x up to its available capacity and receives a matching debt reduction.

   $available_i = min(reserved0x_i , effectiveDebt_i)$

3. Mint shortfall: if there’s still a remainder after the pro-rata draw, UCE mints the difference.

This flow never touches an allocator on a referred mint: referred A→0x must settle entirely from the referrer’s reservedZeroX (or the tx reverts). Socialization only applies to protocol A→0x.

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Accounting Model & Fairness Guarantees

• Index-scaled debts: Each allocator’s debt is tracked in base units and scaled by a global debtIndex to an effective debt: $\displaystyle \text{effectiveDebt}_i = \frac{\textstyle (\text{baseDebt}_i \times \text{debtIndex})}{10^{18}}$

  This model keeps per-allocator mutations O(1) and enables proportional adjustments without iterating every account for re-scaling.

• Pro-rata selection set: The engine computes a denominator $D = \sum_i \text{available}_i$ and assigns each allocator a share ≈ $availablei​/D$ of the remaining 0x need. If D=0 (no eligible inventory), no draw occurs and the engine proceeds to mint.

• Bounded by risk: For each allocator , the engine caps the draw by both inventory and debt (min(reservedZeroX, effectiveDebt)), ensuring:

  • It never consumes more 0x than the allocator actually warehoused.

  • It never nets debt below zero from pro-rata operations.

• Netting down debt: The 0x taken from an allocator is treated as repayment in 0x-equivalent:

  • Decrease reservedZeroX_i and totalReservedZeroX.

  • Convert the applied amount to base units via debtIndex and subtract from baseDebt_i and baseTotalDebt.

  • Update the linked list order (approximate by effective debt) via _rebalanceAllocatorDown so the pro-rata traversal remains efficient and directionally fair under churn.

• No slippage, user-neutral: Users see deterministic fills (no pricing slippage introduced by socialization). The mechanism reallocates issuer liabilities, not user outcomes.

Edge handling

• If the total available inventory D is less than the required amount, the engine draws all D pro-rata and mints the rest.

• If D is greater than or equal to the need, the engine draws exactly the target amount in a single pass (with a follow-up top-off pass to close rounding gaps), preserving proportionality.

Design outcomes

• Alignment: Issuers who warehouse more inventory and carry more debt shoulder a proportionate share of protocol flow, and receive proportionate debt reduction.

• Safety: The engine never “borrows” from pockets; redemptions of underlying remain bounded by on-hand + allowance-bounded pocket liquidity.

• Extensibility: The index-based model (baseDebt × debtIndex) supports future global proportional adjustments (e.g., governance-driven write-downs) without touching every account, while today’s live socialization happens through the pro-rata 0x draw path described above.