Smart Contract Convertibles

ETH Strategy DAO raises funds by issuing onchain convertibles, which are structured as follows

Initial Offering:

• Convertibles are auctioned in USDC with a maturity date and a variable strike price in ETHSR. Governance sets a starting and ending strike price for the convertibles, and it is up to a market auction to set the strike price of the convertibles within the preset window. The strike prices will vary based on when buyers fill the request.

Conversion:

• At maturity, convertible holders can convert into ETHSR tokens. They will likely only do so if the token’s market price exceeds the strike price.

• Conversion is performed onchain, allowing buyers to capture appreciation in ETHSR’s value.

Redemption Option:

• If ETHSR’s market price does not exceed the strike price, convertible holders can redeem the convertibles for their principal in USDC.

  • It is worth noting that the ETHSR protocol does not swap or otherwise spend the USDC unless the holder converts their corresponding convertible.

  • These convertibles are expected to be highly desirable to the market as they allow anyone to pre-commit USDC with no risk of loss from ETHSR volatility.

Protocol Benefits:

• USDC from convertibles is immediately used to buy ETH (after conversion), growing the pool and boosting ETHSR’s NAV.

• Conversion aligns convertible buyers' incentives with the protocol’s long-term success.