> For the complete documentation index, see [llms.txt](https://docs.nara.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.nara.io/nara-protocol/how-nara-works.md).

# How Nara works

Nara converts short-duration payment financing opportunities into on-chain digital dollar yield. The protocol is built around NaraUSD, the base synthetic digital dollar, and NaraUSD+, the yield-bearing staked version of NaraUSD.

At a high level, users access NaraUSD, Nara allocates capital between liquid reserves and PayFi assets, payment financing generates returns, and those returns accrue to NaraUSD+ holders. The system is designed to balance yield generation with liquidity management, transparency, and capital protection.

### The Nara lifecycle

| Step                                 | What happens                                                                                                                                                                                                                    |
| ------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **1. Capital enters Nara**           | Authorized participants can mint NaraUSD by depositing eligible assets, subject to onboarding and compliance requirements. Other users may access NaraUSD through supported secondary markets and integrations where available. |
| **2. Nara manages reserves**         | Nara allocates backing assets between liquid reserves and short-duration PayFi opportunities according to its portfolio and liquidity policies.                                                                                 |
| **3. PayFi assets generate returns** | Payment businesses and financing counterparties pay premiums for short-duration capital that supports settlement, liquidity, and transaction flows.                                                                             |
| **4. Yield accrues to NaraUSD+**     | Users can stake NaraUSD into NaraUSD+. Returns generated by the PayFi portfolio are designed to accrue to NaraUSD+ through the protocol’s vault or share mechanics.                                                             |
| **5. Users unstake or redeem**       | NaraUSD+ holders can unstake into NaraUSD according to the applicable unstaking process. Direct redemption of NaraUSD may be limited to authorized participants and subject to liquidity conditions.                            |
| **6. Risk controls apply**           | Nara uses liquidity buffers, portfolio diversification, underwriting, transparency reporting, and capital protection mechanisms to manage risk.                                                                                 |

### What users should understand

NaraUSD and NaraUSD+ have different roles. NaraUSD is designed to function as the base synthetic digital dollar, while NaraUSD+ is designed for users who want exposure to short-term finance backed yield. Users should understand the difference between holding NaraUSD, staking into NaraUSD+, unstaking back into NaraUSD, and redeeming NaraUSD through authorized channels.Users should also understand that short-term finance yield is not risk-free. Payment financing involves credit, liquidity, operational, legal, and market risks. Nara’s documentation should therefore be read together with the sections on Portfolio Allocation, Transparency, Risks, and Capital Protection.


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