How Kerne Works

Kerne uses a multi token architecture to separate yield generation from stable dollar functionality. Understanding the three core tokens is key to using the protocol effectively.

The Deposit Flow

The KerneVault is the collateral route. It is whitelist gated and closed to new deposits today; this section sets out how it works. When you deposit a supported asset (WETH in the deployed vault) into the KerneVault smart contract, you receive Kerne Vault shares (kLP) in return. These are ERC 4626 tokenized vault shares that represent your proportional claim on the vault's total assets.

The design pairs a liquid staking position with an ETH perpetual short. Funding payments can be positive or negative. The deployed KerneVault takes WETH, which earns no staking reward, and is closed to deposits.

The design offsets spot exposure with a short position. Hedge sizing, execution costs and venue risk can leave residual exposure. The collateral vault charges a 0.05% deposit fee when deposits are open; the live USDC route instead pays the tiered PSM swap fee, with no fee to stake kUSD into skUSD.

How Vault Shares Appreciate

Vault shares do not rebase. Their quantity stays fixed, while the assets represented by each share change with vault assets. The deployed collateral vault is closed to deposits and has issued no shares.

Your share count stays fixed. When the vault receives a distribution, each share is worth more kUSD.

The vault's total assets include both on chain collateral held in the smart contract and off chain assets deployed on hedging venues such as Hyperliquid. All asset locations are tracked transparently and reported via the Proof of Reserves system. Actual APY will vary based on live market conditions and is never guaranteed.

kUSD: The Synthetic Dollar

kUSD is a separate ERC 20 token pegged to $1.00. It is not the same as vault shares. There are two ways to obtain kUSD:

• Swap via PSM (live today): The Peg Stability Module allows direct 1:1 conversions between USDC and kUSD at a size tiered fee: 10 bps is the base rate and larger mints pay less, down to 5 bps. Larger tickets pay less: call getFee(stable, amount) or read the feeSchedule block on the endpoint linked below. This is the only live path to acquire kUSD on Base mainnet today; the PSM is verified at 0xaBDE…9803 and its live mint readiness gates are public at app.kerne.fi/api/psm-status.
• Mint via kUSDMinter (Phase 2, not yet deployed): A leverage style minting path that will let users lock vault shares as collateral (target 150% collateral ratio) to mint kUSD directly against their vault position. The contract source is in the repository at src/kUSDMinter.sol but is not deployed on Base mainnet today (minterImpl: "" in deployments/8453.json). Until kUSDMinter ships, the only live path to kUSD is the PSM swap above.

kUSD on its own does not earn yield. It maintains a stable $1.00 value and is designed for composability: it can be held in any wallet, transferred freely, used as collateral in lending protocols, or traded on decentralized exchanges. Because kUSD does not rebase, it avoids compatibility issues with DeFi protocols that struggle with rebasing tokens.

skUSD: Yield Bearing kUSD (live)

skUSD is the ERC 4626 staking wrapper that lets kUSD holders access protocol yield without touching the WETH vault.skUSD is live on Base today at 0x96F5102C15b839757f811A98CEc3725Ac21DfA14, source verified on Sourcify. When the strategist distributes captured yield into the wrapper, the skUSD share price rises so holders accrue yield through that share appreciation. The displayed APY is Kerne's live modeled rate on the deployed basis (formula at kerne.fi/api/apy; the hedge is sized one for one against spot, so the carry is multiplied by L/(L+1), which is below one), and distributions scale through the Genesis phase as the delta neutral book and staked balance grow. kUSD held outside skUSD stays a stable $1.00 token and does not itself earn yield.

Peg Stability

kUSD maintains its $1.00 peg through multiple mechanisms working together:

• PSM 1:1 backing (live today): every kUSD currently in circulation is minted via the PSM against deposited USDC at 1:1 with a size tiered fee starting at 10 bps and falling to 5 bps on larger mints. The PSM cap, current exposure, remaining capacity and the fee the contract charges at each size are public at app.kerne.fi/api/psm-status.
• Peg Stability Module (PSM) arbitrage floor: direct 1:1 conversions between kUSD and USDC at the PSM fee create a structural arbitrage that pulls kUSD back to peg whenever it trades below $1.00 on a DEX.
• Insurance Fund (deployed, zero balance today): KerneInsuranceFund is deployed at 0xE8799FCF327C6D2f78103a3c9308C93592A30403 (redeployed 16 May 2026 and verified on Sourcify; the legacy fund at 0x3C93E231a3b74659ABfCA95dFf2eC9a8525b08B9 is retired) and is designed to absorb shortfalls before user redemptions. Its USD balance is a public on chain read. It holds nothing today, and a route from protocol revenue into the fund is not wired yet.
• Redemption rights: kUSD holders can redeem for USDC through the PSMs at one for one, less the 10 to 5 bps fee, up to the USDC held in the PSM they redeem from (read live) and inside the 200 bps depeg gate.
• kUSDMinter overcollateralization (Phase 2): when the leverage style mint path ships, kUSD minted against vault shares will be backed at a target 150% collateral ratio with a 120% liquidation threshold. This path is not live today; the source is in src/kUSDMinter.sol but is unshipped.

If kUSD ever trades below $1.00 on a DEX, arbitrageurs can buy kUSD cheaply and convert it to USDC at $1.00 through the PSM, capturing the difference. This arbitrage pressure continuously supports the peg from below.