CDT
The fungible debt token that tracks what the protocol owes — and powers the conversion mechanism.
The Problem
DeFi protocols that issue debt typically represent it as an opaque accounting entry — a number in a mapping, invisible to the market. There's no way to trade protocol debt, no way to price it independently, and no way to use it as a building block in other systems. This limits what can be built on top of debt positions and makes the protocol's leverage opaque.
ETH Strategy makes its debt visible, fungible, and composable by representing it as a standard ERC-20 token: CDT.
What is CDT?
CDT (Converible Debt Token) is a fungible ERC-20 that represents protocol debt. Each CDT corresponds to approximately $1 of debt the protocol owes to note holders.
CDT is one half of a convertible note. When a user purchases a USD-denominated convertible note (paying with ETH), they receive CDT alongside an NFT option. The CDT is the debt receipt — 1 CDT per ~$1 of USD notional; the NFT encodes the conversion rights. Both are required to exercise — but because CDT is fungible, it can be traded, transferred, or used as collateral independently of the NFT it was issued with.
CDT total supply = total protocol debt. At any moment, the sum of all CDT in existence represents the dollar-denominated obligations the protocol has outstanding. This makes leverage transparent and on-chain — anyone can check CDT.totalSupply() to see exactly how much the protocol owes.
How CDT is Created
New CDT enters circulation through convertible note purchase. When a user purchases a note (sending ETH as payment):
The protocol calculates the USD notional value using the ETH/USD oracle price
CDT is minted to the buyer at a 1:1 ratio with the USD notional — purchase a $10,000 note, receive 10,000 CDT
An NFT is minted alongside encoding conversion entitlements, timelock, and expiry
CDT is also re-minted when a Treasury Lending borrower repays their loan — restoring the CDT that was burned as collateral at origination. This is not new debt creation; it's returning previously existing CDT.
Only authorized minter contracts (ConvertibleNote, TreasuryLend) can mint CDT. It cannot be minted by governance, by stakers, or through any other mechanism.
How CDT is Destroyed
CDT is destroyed (burned) through three paths:
Conversion (Before Expiry)
A note holder burns CDT against their NFT to receive STRAT or esETH. The amount burned determines the pro-rata share of conversion entitlements received:
Convert to STRAT: Burn CDT → receive newly minted STRAT proportional to the NFT's
conversionEntitlementStratConvert to esETH: Burn CDT → esETH moves from encumbered to unencumbered holdings, then transfers from unencumbered to your address, proportional to the NFT's
conversionEntitlementEth
Partial conversion is supported — burn some CDT now, keep the rest for later. The NFT tracks remaining balances.
For the full conversion mechanics, see Conversion of Notes.
Redemption (After Expiry)
After the note's ~4.2-year expiry, the holder redeems remaining CDT for the USD notional value, paid in esETH. If the protocol is solvent, this pays out at full face value. If the protocol is underwater, it pays out pro-rata across all CDT holders.
Redemption burns the CDT and closes the note position entirely.
Treasury Lending Collateral
When a borrower opens a Treasury Lending position, CDT is deposited as collateral alongside STRAT. The deposited CDT is burned at origination — if the borrower defaults (fails to repay by the term's end), the CDT is permanently gone. On successful repayment, the protocol mints replacement CDT back to the borrower.
This mechanism means treasury lending effectively destroys CDT on default, reducing total protocol debt and benefiting remaining STRAT holders.
CDT in the System
CDT serves three roles beyond simply representing debt:
1. Conversion Key
CDT is required to exercise conversion rights. An NFT alone cannot be converted — you must also hold and burn CDT equal to the portion you want to exercise. This creates organic demand for CDT beyond its redemption value, since anyone holding an NFT with valuable conversion rights needs CDT to unlock them.
2. Treasury Lending Collateral
To borrow esETH from the treasury via Treasury Lending, users must deposit both STRAT and a proportional amount of CDT. The required CDT is calculated as:
This ensures borrowers have skin in the game on both the equity (STRAT) and debt (CDT) side of the protocol.
3. Pricing Input
CDT total supply directly influences the price of new convertible notes. The conversion entitlement pricing formula has two governance-controlled scaling factors — PCF (Premium Control Factor) and GCF (GAV Control Factor) — and the premium component scales with CDT supply:
Higher CDT supply → higher premium → fewer tokens per new bond. This creates a natural governor on debt issuance: as the protocol takes on more debt, new bonds become less attractive, slowing issuance automatically. For the full pricing breakdown, see Convertible Notes — Conversion Entitlement Pricing.
Permit Support
CDT implements ERC-2612 permit functionality. This allows holders to approve CDT spending via off-chain signatures rather than on-chain approve() transactions. In practice, this means:
Conversion in one transaction — sign a permit and convert in a single call, saving gas
Redemption in one transaction — same pattern for post-expiry redemption
Better UX for integrators — protocols building on CDT can batch approval and action
Token Details
Name
ETH Strategy Debt
Symbol
CDT
Standard
ERC-20 with ERC-2612 permit
Decimals
18
Minting
Restricted to authorized minter contracts (ConvertibleNote, TreasuryLend)
Burning
Burned through conversion (before expiry), redemption (after expiry), and treasury lending collateral
Ownership
Ownable2Step — two-step ownership transfer for safety
Transferable
Yes — standard ERC-20 transfers
Status: Upcoming Release — CDT will be minted through the convertible note bonding mechanism. It is not yet live on mainnet.
Failure Modes and Gotchas
CDT is required for conversion. If you hold an NFT but have sold or used all your CDT, you cannot convert. You must reacquire CDT on the open market before exercising conversion rights. This is by design — it creates a market for CDT and ensures debt is properly accounted for — but it can surprise holders who trade CDT without understanding this requirement.
CDT is burned on treasury lending default. If you deposit CDT as collateral for a treasury loan and fail to repay before the term expires, the CDT is permanently gone. Unlike typical DeFi collateral that gets liquidated back to you (minus penalties), CDT collateral is burned at origination and only re-minted on successful repayment.
CDT does not accrue interest. CDT represents a fixed dollar-denominated claim. It does not earn yield, rebase, or appreciate. Its value comes from the redemption right ($1 face value in esETH after expiry) and its utility as a conversion key and lending collateral.
CDT supply affects bonding price. Because CDT supply is an input to the conversion entitlement pricing formula, large bond issuances that significantly increase CDT supply will affect the terms offered to subsequent bonders. The formula uses adjustedCdtSupply (current supply + half the new settlement amount) to smooth this effect within a single transaction.
Pro-rata redemption risk. If the protocol is underwater at expiry (total CDT supply exceeds the treasury's USD value), CDT redeems for less than $1. All CDT holders are treated pari passu — no seniority, no priority. The payout is: your CDT / total CDT × total treasury value.
Minting is permissioned. Only addresses explicitly authorized as minters by the contract owner can create new CDT. This is managed through manageMinter() and restricted to protocol contracts (ConvertibleNote, TreasuryLend). CDT cannot be inflated arbitrarily.
For a comprehensive view of protocol risks and mitigations, see Risks.
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