Risks For Insurance Stakers

Staking earns Warrant rewards, but your USDT is genuinely at risk. Here's the full picture.

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Primary Risk: Shortfall Coverage

Your USDT may be used to cover USD bond shortfalls.

USD Bond series matures
        │
        ▼
Series proceeds < Principal owed
        │
        ▼
Your staked USDT helps cover the gap
        │
        ▼
You receive $MSTR compensation
        │
        ▼
┌────────────────────────────────┐
│  $MSTR covers your loss?       │
└────────────────────────────────┘
        │               │
       YES              NO
        │               │
        ▼               ▼
  Made whole       You take a loss

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When You Take a Loss

You lose money when both conditions are true:

1. The Insurance Pool is used to cover a shortfall

2. The pre-minted $MSTR isn't enough to compensate you

This requires:

• BTC price significantly down at maturity

• $MSTR price also significantly down

• Large shortfall relative to pre-minted $MSTR

It's a severe scenario — but it can happen.

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Compensation Risk

Even when you're "made whole," you receive $MSTR, not USDT.

Situation	Outcome
$MSTR price stable/up	Your $MSTR compensation holds value
$MSTR price down	Your compensation loses value after you receive it

You're compensated at 24-hour TWAP, but $MSTR can move after that.

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Lock-Up Risk

Your USDT is locked for the duration you chose.

Risk	Description
No early exit	Cannot withdraw before lock expires
Opportunity cost	Miss other investment opportunities
Extended exposure	Longer lock = more time exposed to potential shortfalls

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Risk by Lock Duration

Lock Period	Reward Multiplier	Risk Level
3 months	1.0x	Lower exposure
6 months	1.2x	↓
12 months	1.5x	↓
18 months	1.8x	↓
24 months	2.0x	Higher exposure

Longer locks earn more — but face more potential shortfall events.

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Other Risks

Risk	Description
Smart contract risk	Bugs or exploits in protocol code
Oracle failure	Price feeds malfunction during settlement
Warrant value risk	Your reward Warrants could expire worthless if $MSTR stays below strike
Protocol failure	Catastrophic event affecting the entire protocol

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Worst Case Scenario

Total Insurance Pool: $20M

Major shortfall: $8M needed

Pre-minted $MSTR available: Worth $3M at TWAP

Result:

• $8M USDT drawn from pool

• Stakers receive $3M worth of $MSTR

• Uncompensated loss: $5M

• Stakers lose 25% of pool value ($5M ÷ $20M)

This is extreme — but you should understand it's possible.

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Questions to Ask Yourself

Before staking:

• ✓ Can I afford to lose some or all of my staked USDT?

• ✓ Am I comfortable being locked for this duration?

• ✓ Do I understand I'll be compensated in $MSTR, not USDT?

• ✓ Are the Warrant rewards worth these risks to me?