How does the Ring of Light work?

Well, MS has made sure to make it as complicated as possible. To save I/Os on their mcu, they have chosen to use a pwm scheme that brings down the pin count from eight to five I/Os. If you want to understand how this works you should first read up on pwm on Wikipedia.

We'll start by examining the schematic:

This shows how the bi-color LEDs of the ring of light (from now on ROL) is connected to the mcu (MS-VS55) and also how the center power led is connected.

The mcu outputs a 50Hz pwm that is then split up in two, an exact copy (PWM_LED1) and an inverted copy (PWM_LED2). This is the pwm that drives the led; it is its power source. PWM_LED1 drives D1 and D2 and PWM_LED2 drives D3 and D4. This pwm is ALWAYS on, even when the Xbox360 is in standby. The LEDs are then controlled (turned on/off) by controlling the ground.

Now comes the complicated part; they only use four inputs to control eight LEDs. The green and red leds are controlled in the exact same way so I'm just going to do this example on the green LEDs. The cathode (negative side) of D1 and D3, and D2 and D4 are connected together. The thing is these pairs (D1 and D3, D2 and D4) have the anode (positive side) connected to different pwms. One is connected to PWM1 and the other one is connected to PWM2. This way they will never get power supplied to them at the same time, so you can say that each LED gets a small time slot to control it's ground.

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