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

# How Butane works

Where synthetics come from, where they go, and how collateral and fees move.

Each Butane market has one synthetic. Its supply grows when the synthetic is minted and shrinks when it is burned, and collateral moves between borrowers, liquidators, redeemers and the treasury along the way.

<figure><img src="https://2611713366-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FsKoaKdI1o97UnvYVMfiL%2Fuploads%2Fgit-blob-fa15c7a7f3fc83a9c66455caa82472b5a154c8df%2Fsynthetic-supply.png?alt=media" alt="Diagram: borrowing, buying from the treasury and savings rewards mint the synthetic; repayment and interest, liquidation, redemption and selling to the treasury burn it"><figcaption><p>What mints and burns a synthetic.</p></figcaption></figure>

## Minting

* **Borrowing.** A CDP locks collateral and mints the synthetic as debt. See [Borrow](/use-butane/borrow.md).
* **Buying from the treasury.** You pay a reserve asset into the treasury and receive newly minted synthetic at the market's fixed conversion rate. See [Swap](/use-butane/swap.md).
* **Savings rewards.** Staked synthetic earns the market's savings rate, and the rewards are minted when you unstake. See [Earn](/use-butane/earn.md).

## Burning

* **Repayment and interest.** Repaying a CDP burns the principal and its interest.
* **Liquidation and redemption.** A liquidator or redeemer burns the synthetic to repay someone else's debt and takes collateral in return. See [Liquidate and redeem](/use-butane/liquidate-and-redeem.md).
* **Selling to the treasury.** You burn the synthetic and receive a reserve asset from the treasury.

## Where collateral goes

Collateral stays locked in its CDP until the owner withdraws it, or another user liquidates or redeems against the CDP.

* A **liquidator** receives collateral worth the debt they repay plus a profit, up to the market's max liquidation return. Part of that profit goes to the Butane treasury.
* A **redeemer** receives collateral worth the debt they repay, adjusted by the market's redemption share.
* After a full liquidation or redemption, any collateral the other user does not take is set aside for the owner to [claim](/use-butane/manage-positions.md#claim-leftover-collateral).
* A CDP whose debt grows larger than its collateral can be absorbed by the treasury. See [Bad debt](/use-butane/liquidate-and-redeem.md#bad-debt).