Regulatory and token risk
Jurisdictions
Section titled “Jurisdictions”fact Stock Tokens are not available to US persons and are restricted in the United Kingdom, Canada, Switzerland and other jurisdictions (Robinhood docs). Because SHIELD requires Stock Tokens and COUPON may deliver them, both legs are effectively restricted to persons eligible to hold Stock Tokens. The protocol’s front-end may geoblock; the contracts themselves are permissionless, and the Stock Token contracts enforce their own transfer rules.
Characterisation
Section titled “Characterisation”COUPON and SHIELD units economically resemble structured notes and options. Depending on jurisdiction they may be treated as securities, derivatives or something else. The protocol does not take a position on this and does not offer, solicit or advise. Users are responsible for their own compliance.
Changes
Section titled “Changes”Regulators may require the issuer to freeze tokens, restrict transfers or unwind products. Governance may respond by pausing subscriptions, cancelling observations or refunding series. Such actions would be announced on-chain via the timelock and could impose losses or delays.
NOTE token
Section titled “NOTE token”NOTE has governance, staking and floor-redemption utility. It is not a stablecoin, not a deposit, and not a promise of yield. Its market price can trade far above or below the Treasury floor.
Precedent
Section titled “Precedent”Olympus (OHM) is the reference design for bonds-plus-staking treasuries. Its market value peaked at roughly $4.35bn and then fell 80 to 90% (The Block, 18 January 2022). The mechanics that drove that decline were rebasing emissions funded by dilution, high advertised APYs unrelated to revenue, and a floor that was theoretical because redemption did not exist.
Note Systems differs in the following ways, none of which remove reflexivity:
| OHM (2021 design) | Note Systems |
|---|---|
| Rebasing sOHM with emission-funded APY | sNOTE rewards are only NOTE bought back with realised fees |
| No hard cap | 100,000,000 hard cap plus per-epoch mint cap |
| Floor was a narrative | Floor is an on-chain redemption with haircut and daily cap |
| Bond discounts set by demand alone | Bond discount also linked to Desk utilisation |
| Treasury was reserves only | Treasury holds yield-bearing COUPON legs and can deploy via Desk |
The remaining risks are that fee revenue is small relative to NOTE market value, that bond buyers sell vested NOTE into the buyback, that the redemption cap makes the floor slow to realise in a run, and that governance misuses treasury withdrawal authority.
Coupons, physical settlement, bonding, staking rewards and redemptions may each be taxable events. Take advice.