> 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/btcd/btcd-portfolio.md).

# BTCD Portfolio

### Portfolio Composition

The portfolio holds a mix of blue-chip yield-bearing assets across both sides of the BTC/USD mandate. Asset categories include:

* Yield-bearing BTC exposure: ybBTC, GMX V2 GM BTC/USD pool tokens, and other productive BTC strategies.
* Yield-bearing USD exposure: sUSDe, sUSDS, and other productive USD strategies.
* Liquid balancing inventory: wBTC, USDC. Used for rebalancing and to provide internal RFQ liquidity to the vaults.

The exact target weights and venue allocations are managed actively and will vary over time based on relative yields, capacity, and risk. A live dashboard showing current composition will be published.

### The Hedging Mandate

The portfolio is continuously hedged so that its overall omega equals the peg's omega, $$\omega\_V=0.5$$. This is the first-order condition for the collateral ratio to be insensitive to BTC price moves.  Mathematically, the exposure of the entire portfolio $$\omega\_V$$ can be expressed as the value-weighted sum of the exposure of each asset in the portfolio, $$\omega\_i$$:

$$\omega\_V = \sum\_i f\_i \omega\_i = 0.5$$

where the sum runs over every asset in the portfolio, $$f\_i$$ is the fraction of total portfolio value held in the $$i$$th asset, and $$\omega\_i$$ is the asset's exposure. Hedging is implemented through liquid USD ↔ BTC swaps, with deeper structural rebalancing handled by adjusting positions in yield-bearing strategies more slowly.

### Look-Through Accounting for ybBTC

The portfolio does not treat ybBTC as a static 1.0 BTC-delta asset. It marks ybBTC's effective BTC exposure $$\omega\_{yb}$$ by reading the live state of the underlying Yield Basis Cryptoswap pool, then uses that $$\omega\_{yb}$$ in the portfolio-level hedging equation. This means:

* When the YB pool is balanced, $$\omega\_{yb}\approx 1$$ and ybBTC behaves like spot BTC for accounting purposes.
* When the YB pool is USD-heavy (after a BTC price increase), $$\omega\_{yb} < 1$$ —  ybBTC is delivering less than full BTC exposure, and the portfolio compensates by holding more BTC elsewhere.
* When the YB pool is BTC-heavy (after a BTC price decrease), ω\_Y > 1.0; ybBTC is delivering more than full BTC exposure, and the portfolio compensates by holding less BTC elsewhere.

The result: the rest of the portfolio acts as a dynamic hedge against ybBTC's exposure drift. ybBTC contributes its yield to the system, but its TRD risk is absorbed at the portfolio level — never passed through to BTCD or sBTCD holders.

### Rebalancing Bands

The portfolio rebalances to maintain $$\omega\_V$$ near 0.5 within a tolerance band. The bands trade off tracking precision against transaction costs.

*Currently, the portfolio uses bands of approximately 49% / 51% effective BTC exposure with target re-entry around 49.5% / 50.5%. Exact band parameters are subject to ongoing optimization based on realized volatility and execution costs.*

The mathematical framework for choosing optimal bands is documented in the [Portfolio Hedging Research Notes](/research-and-mathematical-foundations-1.md).

### Yield Sources

Yield flowing to sBTCD comes from four broad sources:

* Yield-bearing dollar assets: staking and savings yield from sUSDe, sUSDS, and similar instruments.
* Yield-bearing BTC assets: ybBTC, GM pool fees, and other productive BTC strategies.
* Rebalancing P\&L: the portfolio rebalances frequently in small increments. Because the rebalancing trades are economically equivalent to the assignment leg of a short strangle, they earn premium on average — the LVR that an unhedged 50/50 LP would lose to arbitrageurs is, in the BTCD Portfolio, captured as protocol revenue.
* Internal RFQ revenue: when vaults rebalance against the portfolio, the trades are matched at internal mid-prices, capturing spread that would otherwise be paid to external venues.

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