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

# Mechanism Overview

Mezzanine operates on two distinct layers:

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**Capital layer**: USDC held in Mezzanine and Custodian smart contracts, deployed into whitelisted DeFi strategies.
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**Accounting layer**: mzUSD represents the base claim against the capital pool. Tranche tokens represent risk-tiered positions within the claims stack.
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<figure><img src="/files/8j6oMolFF5EYukTMn24x" alt=""><figcaption></figcaption></figure>

#### Yield Generation

Yield is generated by deploying **USDC** into whitelisted DeFi strategies.

Capital is held in Mezzanine or Custodian smart contracts that make up the Master Vaults. Strategy wallets are publicly visible. All capital movements are on-chain.

Yield distribution and loss calculation is triggered by a role-authorized address based on NAV reported by on-chain pricing sources.


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