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''Note: the MASTER knob only affects the tone sent to the analog outputs.'' For the digital outputs (AES, SPDIF, USB), the signal is never converted back to an analog signal and never hits the analog Master Knob gain stage. The Pod's signal is mostly digital; it goes:
* Input Source > A/D convertors > digital signal processing > D/A conversion > Master knob attenuation /amplification > analog outputs
Even when setting up a patch that is close to maxing out the Pod's maximum digital signal level, with the MASTER Knob at 100%, I do not hear any distortion occuring. So proper gain staging dictates setting this knob to 100%. Line 6 documentation echoes this opinion, saying this setting results in the highest signal-to-noise ratio from the unit. But be wary of what you're connecting the Pod into. I have clipped the effects loop return of my amp when setting this too high - my amp provides no control to attenuate the loop return signal.