Market Risk

Both legs carry market risk. COUPON can receive stock worth less than its deposited notional; SHIELD pays coupons and fees for protection that applies only under the maturity conditions.

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.

fact COUPON Calculation

illustrative For the worked example (barrier 80%, nine coupons paid before a final print at 99.00 = 55% of s0), the loss is 45% of principal less 3.04% of coupons: net −41.96%. Had the stock printed 40.00 (22%), the net would be −74.7%. The maximum loss is the full principal (stock to zero) less coupons.

Points to understand:

• illustrative Cliff. With a 180.00 strike and an 80% barrier, a maturity price of 144.00 returns 100,000.00 USDG principal. At 143.99, physical settlement delivers stock worth approximately 79,994.44 USDG, assuming USDG remains at par. A one-cent change crosses the barrier and changes the settlement asset.
• 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. illustrative Scenario B in the worked example costs 6,150.00 USDG, or 6.15% of notional, over twelve weeks.
• Protection ends on autocall. A rally at observation 1 ends your cover after one week. Further protection requires a separate series with new terms and a new strike price.
• 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.