Bucket Protocol: An Overview

Bucket Protocol is a decentralized finance platform deployed on the Sui blockchain that operates as a Collateralized Debt Position (CDP) system. Users lock approved crypto assets as collateral in order to mint the protocol's native USD-pegged stablecoin.

The design prioritizes capital efficiency and includes capabilities such as elevated loan-to-value ratios, an option for leveraged exposure, and products that let depositors earn yield on stablecoin holdings. The project initially launched with BUCK and later migrated to USDB as its principal stablecoin.

Overview

Built with inspiration from Liquity on Ethereum, Bucket Protocol is tailored to Sui's object-oriented design. The system lets users establish isolated debt accounts—called Tanks or Buckets—by depositing approved collateral and minting USDB against that collateral. Each debt account is tokenized as an NFT, rendering the debt position transferable and tradable. The protocol focuses on fixed borrowing costs rather than interest rates that vary with market conditions.

Systemic solvency relies on enforced over-collateralization, a community-funded Stability Pool that absorbs liquidated debt, and a redemption mechanism that creates arbitrage opportunities to maintain the USDB peg. Over time the platform has introduced new tokens, upgraded its liquidation processes, and switched its primary stablecoin to boost both safety and capital efficiency.

The project frames its mission as creating a dependable, decentralized liquidity layer for Sui. The developers summarize the protocol's purpose as: "Bucket Protocol is a decentralized borrowing protocol that allows you to draw 0% interest loans against \[SUI] - (\[<iq.wiki/wiki/sui>] - (<iq.wiki/wiki/sui>)) or other assets as collateral... Bucket Protocol is purpose-built for capital efficiency on \[Sui] - (\[<iq.wiki/wiki/sui>] - (<iq.wiki/wiki/sui>)), drawing inspiration from Liquity's proven model while introducing unique features tailored for the \[Sui] - (\[<iq.wiki/wiki/sui>] - (<iq.wiki/wiki/sui>)) ecosystem."

History and Development

Early development received institutional backing from the Sui ecosystem. The project was awarded a grant by the Sui Foundation in May 2023 and took first place in the DeFi & Stablecoin category of the Sui x KuCoin Hackathon in June 2023.

The protocol deployed a testnet in July 2023 and followed with a V1 mainnet launch in August 2023, initially accepting SUI as collateral and issuing the BUCK stablecoin. The platform reported early traction, reportedly surpassing 10 million by July 2023.

Protocol Upgrades

• Bucket V2 (Early 2024): In February 2024, the protocol rolled out V2 which introduced the BKT governance token, implemented an "instant Dutch auction" approach to liquidations, launched the sUSDB savings module to earn yield on the stablecoin, and integrated a decentralized exchange (DEX). This upgrade required users to migrate their positions from V1 contracts.
• The Major Upgrade (Late 2024): In September 2024, the team announced a substantial architectural revision that replaced static "Vessels" with more flexible "Buckets." This design permitted a single wallet to hold multiple isolated positions for the same collateral asset, facilitating finer-grained risk management. The release also introduced the Bucket Point System to reward participation, with points earmarked for conversion into a future airdrop of the BUT governance token.
• Transition to USDB (2025): The protocol implemented a foundational change by replacing BUCK with USDB (Bucket Dollar) as its main stablecoin. A multi-phased migration began around October 2025. The new framework removed the prior 0.3% one-time borrow fee and adopted an interest-only fee model, and it eliminated the system-wide "Recovery Mode" to simplify risk considerations for users. During migration, holders could swap legacy BUCK for USDB at a 1:1 rate and migrate their positions into the updated system. The original BUCK token was later repurposed as an index token for Liquid Staking Tokens (LSTs).

Technology and Core Mechanics

The protocol comprises several interlinked components intended to preserve stability, maintain solvency, and maximize capital utilization.

Collateralized Debt Positions (Tanks)

• The core of the protocol is the CDP mechanism, where users create individual positions called "Tanks" (also previously known as "Buckets" or "Vessels"). In a Tank, a user deposits a supported collateral asset to mint (borrow) USDB stablecoins. Each Tank is an isolated position, meaning the risk associated with one type of collateral does not impact positions backed by other assets. The ownership of each Tank is represented by a `tBUCK` NFT, which is transferrable and makes the debt position itself a tradable asset. The system is designed to support a high Loan-to-Value (LTV) of up to 90.9%, which corresponds to a Minimum Collateral Ratio (MCR) of 110%.
• Supported Collateral: The protocol accepts a variety of assets to improve capital efficiency across Sui, including the native SUI token; Sui Liquid Staking Tokens (LSTs) such as `afSUI`, `haSUI`, and `vSUI`; wrapped tokens like Wrapped Bitcoin (`BTC`) bridged via LayerZero; and yield-bearing tokens from other protocols such as Scallop's sCoins (`$SCA`, `sUSDC`).
• Over-collateralization: Every USDB in circulation is backed by a surplus value of crypto assets locked in the protocol's Tanks.
• Redemption: This mechanism creates a price floor for USDB. Users can redeem USDB with the protocol at any time to receive 1, as traders can buy it cheap and redeem it for a profit, creating buying pressure that restores the peg. A redemption fee is charged and distributed to `BUT` token stakers.
• Peg Stability Module (PSM): The PSM creates a tight price band around $1 by allowing users to swap USDB for other approved stablecoins like USDC at a 1:1 ratio, minus a small fee. This allows arbitrageurs to correct price deviations in either direction, and it also helps consolidate stablecoin liquidity on Sui.
• Stability Pool: This is the first line of defense. Users can deposit their USDB into the Stability Pool to act as liquidity providers for liquidations. When a Tank's collateral ratio falls below the minimum requirement (e.g., 110%), its debt is repaid by burning USDB from the Stability Pool. In return, the Stability Pool depositors receive the liquidated collateral (often at a discount) as a reward, along with ongoing `BUT` token emissions.
• Redistribution: In the event the Stability Pool is depleted, the protocol redistributes the debt and collateral from the liquidated Tank among all other active Tank holders. This serves as a secondary, collective backstop mechanism.
• Removal of Recovery Mode: An earlier version of the protocol included a "Recovery Mode" that was triggered if the system's Total Collateral Ratio (TCR) fell below 150%. In this mode, any Tank below the TCR could be liquidated. This feature was removed in a late 2025 upgrade to simplify user risk management, allowing borrowers to focus solely on their individual position's health.

Protocol Tokens

The protocol employs multiple tokens for stablecoin functionality, governance, and user incentives. Bucket Dollar (`USDB`) is the principal USD-pegged stablecoin minted against collateral and used across borrowing, savings, and the Stability Pool. The protocol's utility and governance token is `BUT`, which can be staked to claim a portion of protocol revenue from borrow and redemption fees and to vote on parameters; this token was referenced as `BKT` in V2 materials.

The original stablecoin, Bucket USD (`BUCK`), was phased out as the main borrowed asset and repurposed as an index token for derivatives tied to LSDs. Individual debt positions are represented by the Tank NFT `tBUCK`, making those CDPs transferable. The savings module (The Bottle) issues a yield-bearing receipt token, `sUSDB`, for `USDB` deposits. There is also an escrowed governance instrument, `deBUT`, used for vesting and distribution where holders can participate in governance but cannot transfer `deBUT` until conversion to `BUT`.

This information is synthesized from multiple sources detailing the protocol's tokenomics and evolution.

Products and Features

• Borrow: The core function where users lock accepted collateral in a Tank to mint `USDB`.
• Earn (The Bottle & Stability Pool): The protocol offers two primary ways to earn yield. "The Bottle" is a savings feature for `USDB` and other stablecoins, generating a variable yield from liquidation gains. The Stability Pool allows users to deposit `USDB` to earn liquidation profits and `BUT` token rewards. \[\[https.bucketprotocol.io/earn]\[Bucket Protocol Earn Page]]
• Leverage: A "one-click" feature that enables users to take on leveraged long exposure to collateral assets like SUI and BTC. In a single transaction, the protocol loops the process of minting USDB, swapping it for more collateral, and depositing it back into the Tank to achieve up to 11x leverage (90.9% LTV).
• Swap: An integrated token swap interface within the protocol's dApp, allowing for easy conversion between different assets in the Sui ecosystem.