Market risk

COUPON

You are short a down-and-in put struck at s0, knocked in only at maturity below the barrier, and long a stream of contingent coupons.

Loss at maturity (if S_T < barrier) = N × (1 − S_T / s0) − coupons received

illustrative For the worked example (barrier 65%, 20 coupons paid before a final print at 99.00 = 55% of s0), the loss is 45% of principal less 25.5% of coupons: net −19.5%. Had the stock printed 40.00 (22%), the net would be −52.5%. The maximum loss is the full principal (stock to zero) less coupons.

Points to understand:

• Cliff. At 117.00 you receive 100,000 USDG. At 116.99 you receive stock worth 64,994 USDG. The barrier is a discontinuity; a 1-cent move on one day changes the outcome by 35% of principal.
• Path matters twice. Coupons depend on the barrier holding at each observation; principal depends only on the final observation.
• Autocall truncates gains. Total return is capped at the coupons received before autocall. In strongly rising markets you would have earned more owning the stock.
• Volatility. Higher implied volatility means a higher fair coupon for the same barrier. A coupon that looks generous is compensation for a higher probability of breach, or for an underlying that gaps (earnings, events). Coupon discovery reflects supply and demand within governance bounds, not a model price. See Coupon discovery.
• No mark-to-market exit. Units may be transferable but there is no protocol market for them. Expect to hold to autocall or maturity.

SHIELD

You are long the same put and short the coupons.

• Unhedged drawdown. If the stock ends between the barrier and s0, you paid every coupon and receive no compensation. Scenario B in the worked example costs 39% of notional over a year.
• Protection ends on autocall. A rally at observation 1 ends your cover after two weeks. Staying protected requires rolling into a new series at a new s0.
• Locked stock. Your Stock Tokens are in escrow until settlement. You cannot sell them into a rally.
• Coupon at the cap. If COUPON demand is scarce, the discovered coupon rises to couponCapBps. Your prefund already covers this, but your realised cost may be the maximum.

Desk depositors

The Desk’s NAV includes COUPON positions and, after breaches, Stock Tokens. Its risk is COUPON risk diversified across series and underlyings within the Desk caps.

Stock Token specifics

Tokenised stocks trade around the clock while the reference market does not. Weekend and overnight drift between on-chain prices and the next official close has been measured and is non-trivial (OpenChainBench). The protocol removes this from settlement by observing only official closes, but it does not remove it from the value of Stock Tokens you receive or hold.

Historical context

Autocallable notes are a mature product: the strategy has been packaged into ETFs and sold to retail (ETFGI, SRP). Their well-known failure mode is a correlated sell-off that breaches barriers across many series at once, which is exactly when the delivered stock is least liquid. Diversify across underlyings and vintages.