Capital Allocation Strategies – Risk-On & Risk-Off Modes

Capital Allocation Framework: Risk-On / Risk-Off Mandate

Adaptive Reserve Management to Balance Yield Generation and Capital Preservation

Delta Money operates under a dynamic capital allocation framework designed to respond proactively to evolving market conditions. This framework distinguishes between Risk-On and Risk-Off environments, adjusting portfolio posture accordingly to achieve the dual mandate of yield optimization and capital preservation. All allocations are managed with full transparency, enforced policy thresholds, and an institutional-grade focus on solvency, liquidity, and redemption stability.

Risk-On Mode: Yield Optimization Under Constructive Market Conditions

In favorable market environments — characterized by low volatility, high liquidity, and positive funding rates — Delta Money engages in active capital deployment strategies aimed at compounding protocol reserves and growing the Insurance Fund. The protocol allocates capital across basis arbitrage, selectively unhedged directional exposure, and liquidity provisioning in high-grade markets.

Strategic Parameters:

1

Primary Reserve Deployment

Up to 80% of reserve assets may be deployed into market-neutral basis trades and positive funding opportunities across BTC, ETH, BNB, and SOL, all dynamically hedged to maintain net directional exposure below 10% of NAV.

2

Liquidity & Risk Buffer

A minimum of 20% of reserves is maintained in high-liquidity stablecoins (e.g. USDC, USDT) to ensure redemption coverage and peg defense.

3

Gain Realization Mechanism

Gains from appreciation and funding income are realized through non-disruptive DUSD issuance, with incremental capital allocated to the Insurance Fund.

Illustrative Application (1)

Capital Gains Realization

Delta is already net long 10% ETH. As ETH appreciates from $2,000 to $2,800, Delta monetizes gains by minting new DUSD against the higher NAV — without selling ETH on the market.

Additional hedging is deployed to prevent exposure drift above the 10% NAV target. All realized gains are routed to the Insurance Fund, enhancing protocol solvency while maintaining directional discipline and market neutrality.

Risk-Off Mode: Capital Preservation in Adverse Market Regimes

When market conditions deteriorate — marked by volatility spikes, negative perpetual funding rates, or macro dislocations — Delta transitions into Risk-Off Mode. This entails de-risking the portfolio by exiting high-beta positions and reallocating capital into low-volatility, yield-generating stablecoin instruments.

Strategic Stability:

1

De-Risking Process

• Directional exposure to volatile assets is reduced or neutralized via derivatives.

• Reserves are reallocated into short-duration, yield-bearing stablecoins, predominantly backed by U.S. Treasury instruments (e.g. tokenized T-bill products or direct allocation into on-chain T-bill protocols).

2

Capital Protection

• This posture mitigates drawdowns, avoids negative funding drains, and ensures the Insurance Fund remains insulated from erosion.

3

Peg Stability Priority

• Liquidity reserves remain available for DUSD redemption at par, regardless of market volatility.

Illustrative Application (2)

Strategic Capital Reallocation

In the face of broad market decline and negative perp funding, Delta transitions to risk-off by reallocating into tokenized U.S. Treasuries yielding 4–5% APY.

This shift mitigates drawdown risk, shields the Insurance Fund, and ensures continued DUSD redemption at par — prioritizing capital preservation over speculative exposure.

Governance Controls and Real-Time Monitoring

1

Exposure Caps

Max 10% NAV unhedged per asset; +20% net aggregate exposure across the portfolio

2

Automatic Rebalancing

Triggered when exposure deviates from target ranges or as funding conditions invert

3

Insurance Fund Preservation Mandate

Capital gains accrue to the Insurance Fund during expansion; reallocation prevents erosion in contractions

4

Oracle-Based NAV Management

Portfolio weightings and exposure are tracked in real-time relative to NAV, with rebalancing executed via derivatives and allocation policies