> For the complete documentation index, see [llms.txt](https://docs.btcd.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.btcd.fi/token-overviews-1/btcd/maintaining-delta-neutrality.md).

# Maintaining Delta Neutrality

### What Is “Delta”?

Delta measures how sensitive a derivatives position is to moves in its underlying asset. In our framework, minting 1 BTCD requires 0.5 BTC plus $500 USDC, leaving the protocol naturally with a positive delta of 0.5 BTC. 

Without a hedge, any price change in BTC would directly translate to an equal change in BTCD’s backing value.

### What Is Delta-Neutral Stability? 

A portfolio is delta-neutral when its net delta equals zero, insulating it from spot-price moves. To neutralize our 0.5 BTC exposure, we open a short perpetual futures position whose notional matches the USD value of that 0.5 BTC. 

Gains or losses on BTC collateral are then offset by losses or gains on the futures leg, holding the combined USD value constant through price swings.

### Maintaining a 50 / 50 BTC-to-USD Split 

Our peg hinges on a dynamic 50% BTC, 50% USD collateral mix, kept delta-neutral and proportionally balanced:

1. Collateral Intake - Mints collect exactly 0.5 BTC and $500 USDC per 1 BTCD.
2. Hedging Execution - The protocol shorts BTC perpetual futures equal in USD to the 0.5 BTC collateral, fully offsetting its delta.
3. On-Chain Settlement - BTC sits off-exchange in MPC/multisig custody. USDC goes into yield-bearing stablecoin positions or liquidity pools.
4. Automated Daily Rebalancing 
   1. Every 24 hours, the protocol:
      1. Recalculates market P\&L on both legs.
      2. Rebalances by buying or selling BTC and adjusting futures notional to re-establish a true 50/50 split and net zero delta.
   2. Trades execute within a ±2-hour window around each rebalance timestamp, using TWAP oracles to minimize slippage and guardrails to enforce circuit-breaker thresholds.

### No Material Leverage

We only ever use notional-matched futures—no additional borrowed exposure—eliminating liquidation risk and ensuring that BTCD remains fully collateralized even under extreme volatility.