Bitcoin yield is not risk-free.
The core question is whether that risk is underwritable. Many yield products are not, because they depend on risk controls or off-chain data that cannot be continuously verified.
hBTC takes a different approach.
Our premise is simple: risk is unavoidable, but it can be explicitly defined and controlled. To that end, the hBTC protocol operates within pre-set, auditable limits for leverage, delta exposure, yield spreads, and permitted actions, with controls enforced on-chain through code.
Risk Controls in Practice
Risk is governed through a predefined framework across three dimensions: leverage, delta exposure, and spread.
Leverage: maintained within defined LTV bounds and automatically rebalanced when limits are approached
Delta exposure: kept within a defined neutrality band, with rebalancing to minimize directional risk
Spread: positions are reduced when spreads fall below the threshold and redeployed only after predefined criteria are met, currently two consecutive days of positive spread
To buffer short-term adverse periods, hBTC maintains a dedicated on-chain Reserve Fund. 5% of daily rewards is allocated to the reserve, with a target minimum capitalization of 10 bps of net assets. Reserve assets sit in a dedicated on-chain contract and are independently verifiable via Stacks’ block explorer.
Reserve Fund balances, collateral holdings, and strategy allocations are observable in real time via the Hermetica Transparency Dashboard.
Clear Risk Disclosure
hBTC takes structured risk across several vectors.
Below are the key risks, how they’re monitored, and the controls that limit exposure.
Smart contract risk
As an on-chain protocol, hBTC is subject to smart contract risk, including potential vulnerabilities. To mitigate this, core contracts are publicly deployed and independently audited.Counterparty risk
hBTC integrates with external on-chain protocols and cross-chain infrastructure, including lending markets and the sBTC bridge. Disruptions or failures in these dependencies could impact the system even if hBTC’s core contracts perform as designed. Integrations are subject to technical diligence and audit review, and exposure is continuously monitored with respect to settlement reliability and liquidity conditions.Operational risk
hBTC relies on its on-chain contracts and off-chain keeper systems to monitor risk parameters, execute rebalancing, and perform accounting. This introduces operational risks that can affect performance or availability. Operational risk is reduced by minimizing discretion. Risk parameters are monitored continuously, and critical actions are executed through distributed multisignature controls and timelocks.Market risk
hBTC’s yield strategies involve borrowing and exposure to market-driven variables; they are subject to strategy and market risk. In unfavorable market conditions, returns may decline or turn negative. Leverage, net exposure, and spread conditions are therefore treated as primary risk variables and monitored continuously within predefined limits.
hBTC is designed to be underwritable before capital is deployed.
The risk control framework is live and operating as designed, and allocators granted access are seeing it function in real time.
Access is limited, with new cohorts admitted as capacity becomes available.
If underwritability is a requirement for your allocation process, request access for the next cohort.
