Treasury Lending
A STRAT/ETH Morpho lending pool [link upon creation] has been created by the Treasury on launch.
A portion of treasury ETH is deposited into this Morpho pool which enables STRAT holders to collateralize their STRAT and borrow the treasury ETH.
ETH is lent against STRAT at a rate that is determined by the net ETH/STRAT ratio, which is given by the following equation:
GAV_LP represents the ETH that is allocated to treasury owned LPs. This ETH is not counted as part of GAV for treasury lending purposes.
The ratio above gives the amount of ETH that each STRAT token holder has a claim on in the protocol. The amount of ETH that is deposited into the morpho pool from treasury, and the max borrow per Strat, will be a percentage of this number. This will initially be set to 85%.
This ratio fluctuates as the treasury expands, and as the price of ETH increases or decreases. Crucially, the dollar amount of treasury allocated to the bond holders is equal to the supply of CDT in circulation. The assumption is that every CDT can be, at expiry of options, claimed back for USD.
STRAT Collateral Oracle
The morpho oracle that is used to price STRAT as collateral will be a function of the NAV value of STRAT not the market price of STRAT.
This means loans are not liquidated based on the market price of STRAT but rather on its treasury-backed value. In practice, this means that liquidations are driven primarily by the price of ETH rather than fluctuations in STRAT’s market price. This structure provides greater stability and reduces the risk of forced liquidations due to short-term market volatility in STRAT.
Liquidation
You will be liquidated if the ETH/STRAT ratio drops and is lower than your LTV Liquidation threshold.
The reason why liquidations occur is because a fixed dollar amount is allocated to bondholders. When ETH’s market value declines, the proportion of the treasury owned by STRAT holders decreases. This results in a lower ETH/STRAT ratio, meaning that any borrow positions exceeding this new ratio become subject to liquidation.
This mechanism ensures that the protocol maintains solvency while preserving the balance between bondholder commitments and STRAT holder equity.
Treasury Revenue
As in any lending model, the protocol earns interest on ETH borrowed by STRAT holders, creating a sustainable revenue stream for the treasury. This immediate yield generation increases Treasury NAV from launch, reinforcing STRAT’s premium over its backing value.
Redemption Escape Valve
The ETH borrow using STRAT collateral doubles as an "escape valve". STRAT holders can take their share of net asset value (NAV), and give up STRAT premium. This gives all users of the protocol both the right to join, and the right to walk.
This avoids holders having to organise and petition for redemption (the 'RFV' Wars that killed projects from last cycle).
The key feature of using the borrow/lend for redemptions is it allows a single actor to effectively 'loop' and buy up all circulating STRAT if it trades below NAV, thereby guaranteeing a floating and small, but none-the-less a floor STRAT premium above NAV.
STRAT Token Utility
The only way to access ETH from the protocol treasury is by holding STRAT and using it as collateral, enhancing the token's intrinsic value.
By borrowing ETH with STRAT, borrowers would enjoy more leverage the closer STRAT is to ETH's risk free value. The pool serves as an opportunity for reflexive fixed leverage allowing market forces to find a fair premium for STRAT.