Principal Protected Note Module

The principal protected note is a product requested by our professional investment managers partners. This product is aim is to offer exposure to crypto, whilst keeping downward risk minimal by investing in bonds. In the product overview the BTC-bond is shown as a proof of concept product of this type. With Build Your Own Index, the principal protect note will also be modularized such that assets managers can create their own preferred setup.

Steps:

1. User Deposits Capital into any of the existing smart contracts, enhanced with the PPN module.

   • The contract splits the deposit into two user defined portions:

     • Safe Asset Allocation (e.g., Bonds, Yield-Bearing Stablecoins): A sufficient portion of the funds (e.g., 80-90%) is allocated to low-risk, yield-generating assets, ensuring that over a fixed term, the principal value is fully recovered.

     • Risk Asset Allocation (e.g., Index Tokens, Crypto Strategies): The remaining portion (e.g., 10-20%) is allocated to higher-return assets, enabling upside exposure.

2. Smart Contract Automates Rebalancing & Yield Accrual

   • The protocol continuously monitors yield from the safe asset allocation to ensure it remains on track to recover the full principal by maturity.

   • Use the build-in rebalance function, the contract dynamically rebalances allocations to maintain the protection at the preset frequency (f.e. monthly).

3. Built-in Timelock on Withdrawals & Burn Protection

   • To prevent market timing risks, a optional burn function timelock is implemented, ensuring that redemptions cannot be executed prematurely before the principal protection is secured. Without the timelock, users exit early may do so but would forfeit the protection feature, receiving the mark-to-market value of their allocation instead of the guaranteed principal.

4. Maturity & Payouts

   • Upon reaching the maturity date, users receive their full initial deposit, plus any gains from the growth asset portion.

   • If the growth portion underperforms, the safe asset allocation compensates, ensuring that the user's principal remains intact.