Investment framework

Risk Regime Definition

The Fund employs a systematic regime-classification model that integrates technical and fundamental variables to distinguish between distinct market risk environments.

The model employs both supervised and unsupervised classification methodologies, incorporating fundamental macro variables such as interest rate expectations, derived from the US Treasury yield curve, and changes in aggregate liquidity, derived from M2 data, as well as market sentiment indicators based on momentum in crypto and traditional equity markets.

Within each market regime, the model decomposes the implied DeFi rate risk premium using a multi-factor framework that incorporates ETH price volatility, supply rate volatility, and leverage indicators. These inputs are used to characterise prevailing market conditions and to group observations into distinct risk clusters.

Once risk clusters are defined, the current market regime is assessed against historical data to evaluate observed patterns in DeFi rate behaviour and corresponding risk premium. The resulting outputs inform the Fund’s risk tolerance parameters and guide decisions related to leverage utilisation, strategy concentration, and protocol-specific risk appetite and capital allocation.

Fundamental Risk Assessment

Alongside market-regime analysis, the Fund applies a structured, layered evaluation framework to each protocol and collateral type considered for allocation decisions.

Collateral Assessment

Exposure to any collateral, regardless of the platform or protocol used, is central to the fundamental risk assessment. This analysis includes:

• Smart contract design and technological risk;
• Governance structure and stakeholder incentives;
• Collateral quality, including default and depeg risk;
• Liquidity mechanisms and historical behaviour;

Protocol Assessment

Focuses on the resilience of the protocol layer. The protocol is the application through which the Fund accesses a given market or strategy, with a specific collateral as the underlying asset. This assessment includes both on-chain and off-chain variables:

• Protocol architecture, including composability features, time-locks, and emergency procedures;
• Vault/Market design;
• Oracle mechanisms;
• Protocol Governance;
• External Audits and security reviews;

Blockchain Assessment

The Fund’s multi-chain approach provides an additional layer of flexibility, ultimately enhancing return opportunities. While this multi-chain approach is constrained to EVM-compatible chains, which promotes interoperability, tooling maturity, and developer standardisation, it does not eliminate underlying blockchain-level risks. Therefore, this layer of assessment includes:

• Network security and consensus mechanisms;
• Validator concentration;
• Historical uptime and incident record;
• Governance structure, including reliance on centralized infrastructure;
• Bridge design and cross-chain dependencies;

Allocation Decisions

A formal rating system is applied to the collateral and protocol assessment layers. The outputs of these two assessments are combined into a composite rating for each collateral–protocol pairing. This composite rating directly determines the permissible allocation range and informs position sizing, leverage constraints, and exposure limits within the Fund.

By contrast, the Blockchain assessment operates in a whitelisting system, whereby a blockchain is either included in or excluded from the Fund’s eligible investment universe. No allocation may be made to protocols or positions deployed on non-approved chains.

Additional Notes

Leverage may be employed where consistent with the prevailing market risk regime and the outcomes of the fundamental risk assessment. The Fund may also participate in private transactions within the approved protocol universe, subject to counterparties meeting internal risk standards.

This layered evaluation framework is ultimately operationalised through a set of onchain Permission Policies, which enforce the Fund’s investment mandate and risk constraints in accordance with the Investment Framework.