USDT Backstop System

Each USD bond series has a dedicated USDT Backstop Pool. This system replaces collateral-based liquidation mechanics with straightforward USDT funding.

Purpose

The backstop pool exists to:

1. Guarantee repayment capacity — USDT is available to repay Note NFTs at maturity

2. Compensate stakers — Stakers earn rewards for underwriting series risk

3. Enable deterministic settlement — No dependence on $MSTR price or liquidation auctions

How It Differs From Collateral Models

Collateral Model	USDT Backstop Model
Maintains collateral ratio	No collateral ratio
Liquidates tokens when underwater	No liquidation mechanics
Solvency depends on token price	Solvency depends on staked USDT
Cascading liquidation risk	Series isolation

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Pool Lifecycle

1. Staking Opens

Before the bond sale, USDT staking opens for the series.

• Stakers deposit USDT into the pool

• Each staker receives pool shares proportional to their deposit

• Pool shares determine pro-rata claims to withdrawals and rewards

2. Sale Sizing

The pool determines whether and how large the sale can be.

Minimum check: The sale only proceeds if staked USDT supports at least the minimum sale size defined in series terms.

Maximum cap: Regardless of staked USDT, the sale cannot exceed the maximum cap.

Final size: The smaller of (available staked USDT capacity) and (maximum cap).

3. Surplus Withdrawal

If the sale is under-filled (final size < staked USDT capacity):

• Required USDT remains locked to backstop the sold amount

• Surplus USDT becomes immediately withdrawable

• Withdrawals are pro-rata across all stakers

4. Tenor Withdrawals

During the bond's tenor, stakers may withdraw USDT that is no longer required.

Triggers for USDT becoming withdrawable:

• Warrant exercises — USDT paid into the series ledger reduces required backstop

• Note redemptions — Early redemptions reduce outstanding principal

• Bond conversions — Converting Notes reduces repayment obligations

Pro-rata rule: All withdrawals are allocated proportionally. If 20% of backstop becomes withdrawable, every staker can withdraw 20% of their position.

Preserved entitlements: Withdrawing does not forfeit reward entitlements. Stakers retain proportional claims to:

• Warrant airdrops (if the series distributes them)

• Maturity compensation (reserved $MSTR and BTC make-whole)

5. Maturity Settlement

At maturity, the protocol settles the series:

1. Repay Note NFTs using series ledger funds first

2. If shortfall remains, draw from the USDT Backstop Pool

3. Distribute staker compensation (see below)

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Staker Rewards & Compensation

USDT stakers underwrite series risk. In return, they receive a compensation package defined in series terms.

Upfront Proceeds Share

After the bond sale completes, stakers receive an upfront share of proceeds.

• Percentage: Defined per series (e.g., 10%)

• Payout asset: Series parameter (BTC, USDT, or $MSTR)

• Timing: Distributed after sale finalization

Warrant Airdrops (Optional)

Some series distribute Warrant NFTs to stakers.

• Allocation: Defined per series

• Distribution: Pro-rata based on pool shares

• Tradability: Received warrants can be held, exercised, or sold

Maturity Compensation

If staker USDT is used to repay Notes at maturity, stakers receive:

1. Reserved $MSTR

• Minted after sale completion using 24-hour TWAP

• Earmarked for the series (not circulating until maturity)

• Distributed pro-rata to stakers at maturity

2. BTC Make-Whole

• Triggered if reserved $MSTR value at maturity < USDT taken from stakers

• Protocol pays the shortfall in BTC

• Distributed pro-rata to affected stakers

• Source priority (series funds vs treasury) is a governance parameter

Illustrative Example

A USD bond series raises the equivalent of 10 BTC in USDT.

Event	Amount	Recipient
Upfront reward (10%)	1 BTC equivalent	Stakers (immediately)
Retained for treasury	9 BTC equivalent	Protocol
Maturity shortfall (10% of staked USDT used)	0.9 BTC	Stakers (at maturity)

The 0.9 BTC maturity payment represents 10% of the retained 9 BTC—proportional to the 10% of staker USDT that was consumed for Note repayment.

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Key Parameters

Each USD bond series defines these backstop parameters:

Parameter	Description
Minimum sale size	Floor for sale to proceed
Maximum sale cap	Ceiling regardless of demand
Staking schedule	Open/close dates for deposits
Upfront reward %	Share of proceeds paid immediately
Upfront payout asset	BTC, USDT, or $MSTR
Warrant airdrop %	Portion of warrants distributed to stakers
Reserved $MSTR formula	TWAP window and mint amount
BTC make-whole source	Series funds vs treasury priority