> For the complete documentation index, see [llms.txt](https://token-strategy.gitbook.io/eth-strategy/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://token-strategy.gitbook.io/eth-strategy/how-it-works/smart-contract-convertibles.md).

# Smart Contract Convertibles

**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.