Risk Management Framework & Adaptive Hedging

Delta Posture and Insurance Fund Buffer

Delta Money’s DUSD is anchored by a carefully structured delta management policy and a robust Insurance Fund. These mechanisms work together to preserve system solvency and ensure full user protection across a variety of market scenarios — ranging from sharp rallies to major drawdowns. By combining active delta hedging, capital-efficient gain realization, and a self-reinforcing capital buffer, Delta Money achieves institutional standards of stability and transparency.

Strategic Delta Posture: Managing Directional Exposure

Delta Money enforces a strict delta posture policy that limits net directional exposure. The protocol aims for a target net long exposure of approximately 10% relative to NAV (Net Asset Value) in favorable market conditions, with a maximum directional delta cap of +20% across the entire reserve.

This exposure is achieved through a combination of unhedged reserve positions (deliberate) and dynamically hedged exposure (risk-managed). When price movements push net exposure above the threshold, Delta Money rebalances through derivatives — not asset sales — to stay within bounds.

Exposure Drift & Strategic Rebalancing

Delta Money begins with a delta-neutral posture, meaning no net directional exposure to price movements in digital assets. Once the protocol accumulates a well-capitalized Insurance Fund exceeding $100M, it begins to strategically introduce modest net long exposures, typically targeting 10% of Net Asset Value (NAV). This allows for controlled participation in upside scenarios while maintaining rigorous risk thresholds.

As asset prices move, the value of net long positions fluctuates, potentially drifting outside the intended exposure band. The table below demonstrates how Delta Money monitors and manages this exposure in real time, ensuring it stays within the defined ±10% target range, with a hard ceiling at ±20%.

Exposure Drift & Rebalancing

Disclaimer

The above scenarios are illustrative examples intended to demonstrate how Delta Money manages directional exposure, gain realization, and reserve rebalancing under typical market conditions.

In the event of adverse market conditions — such as sharp volatility spikes, liquidity crunches, or negative funding rates in perpetual markets — Delta Money dynamically adjusts its reserve allocations. This includes rotating capital into stablecoins and yield-bearing stable assets to preserve capital and prevent unnecessary drawdowns on the Insurance Fund.

These adaptive measures ensure that peg stability and solvency are maintained across a wide spectrum of macro environments.

Price Move	NAV	Net Long Value	% of NAV	Action Taken
+0%	$1.0B	$100M	10.0%	No action (target met)
+20%	$1.02B	$120M	11.8%	No action (within band)
+35%	$1.035B	$135M	13.0%	Partial re-hedge initiated
+50%	$1.05B	$150M	14.3%	Additional hedge applied
+80%	$1.08B	$180M	16.7%	Exposure reduced to ~12% (through hedge)

Note: NAV is adjusted based on the unrealized gains of the net long exposure; all other reserve components are assumed to remain constant.

Scenario 1: ETH Appreciates +40%

Gain Realization via DUSD Minting, Exposure Hedged to Lock In Profits

Delta Money holds a net 10% long exposure to ETH, with the remainder of the ETH reserve being delta-neutral via hedging. As ETH appreciates, the gains are realized through minting DUSD, and the resulting appreciation in ETH value is directed to the Insurance Fund.

Reserve Composition (Before ETH Appreciation)

Component	Value (USD)
ETH (Net Long 10%)	$100M
Hedged ETH Exposure	$150M
Other Reserve Assets	$750M
Total Reserve NAV	$1B
Insurance Fund	$150M

After ETH +40% (from $2,000 to $2,800)

Component	Value (USD)
ETH (Net Long 10%)	$100M → $140M
Hedged ETH (neutral exposure)	$290M
Other Reserve Assets	$750M
Total Reserve NAV	$1.04B
New DUSD Minted (Gain Capture)	$40M
Insurance Fund (Post-Gain)	$190M

Net long ETH gain is monetized through DUSD issuance. Hedging is adjusted to lock in profits and prevent exposure from drifting beyond policy thresholds.

Scenario 2: SOL Drops -30%

Loss Absorbed by Insurance Fund, Peg Stability Preserved

Delta Money holds a net 10% long exposure to SOL, with the rest of the SOL reserve delta-neutral via hedging. The Insurance Fund absorbs the loss from SOL's 30% drop.

Reserve Composition (Before SOL Drawdown)

Component	Value (USD)
SOL (Net Long 10%)	$100M
Hedged SOL Exposure	$100M
Other Reserve Assets	$800M
Total Reserve NAV	$1B
Insurance Fund	$150M

After SOL -30% Correction (from $50 to $35)

Component	Value (USD)
SOL (Net Long 10%)	$100M → $70M
Hedged SOL (neutral exposure)	$170M
Other Reserve Assets	$800M
Total Reserve NAV	$970M
Insurance Fund (Post-Loss)	$120M

The Insurance Fund fully absorbs the loss, ensuring that DUSD redemptions and reserve liquidity remain unaffected. Delta neutrality is calibrated to prevent further losses.

Scenario 3: BTC Appreciates +40%

Gains Captured, Reserves Expanded, Insurance Fund Replenished

Delta Money leverages DUSD minting and derivative hedging to capture gains from a net long BTC position without disrupting the market.

Reserve Composition (Before BTC Rally)

Component	Value (USD)
BTC (Net Long 10%)	$100M
Hedged BTC Exposure	$100M
Other Reserve Assets	$800M
Total Reserve NAV	$1B
Insurance Fund	$150M

After BTC +40% (from $30K to $42K)

Component	Value (USD)
BTC (Net Long 10%)	$100M → $140M
Hedged BTC Exposure (neutral exposure)	$240M
Other Reserve Assets	$800M
Total Reserve NAV	$1.04B
New DUSD Minted (Gain Capture)	$40M
Insurance Fund (Post-Gain)	$190M

BTC gains are not sold on the market. Instead, Delta hedges the value and mints DUSD to convert paper gains into capital buffer growth.

Insurance Fund: Capital Buffer Policy

The Insurance Fund is a permanently capitalized reserve that:

• Absorbs volatility-driven losses

• Reinforces market confidence

• Stabilizes redemptions under stress

Key Design Parameters

Specification	Value
Initial Capitalization	$150M
Minimum Coverage Ratio	120% of unhedged exposure
Replenishment Sources	DUSD-minted capital gains, 25% protocol yield
Exposure Limit Enforcement	Delta-capped via derivatives

Delta Posture and Insurance Fund Policy

Delta Money begins with a delta-neutral posture (i.e. no net long exposure) and maintains this stance until the Insurance Fund exceeds $100M. Once the Insurance Fund is sufficiently capitalized, Delta starts to engage in net long positions with a cap of 10% NAV per asset and a maximum of +20% total exposure.

The protocol automatically rebalances via derivatives before exposure reaches the 20% cap, ensuring that no single asset class, such as ETH, BTC, or SOL, can breach the protocol's risk tolerance.