How It Works

# Lifecycle Example

This trace follows one S-BTC position from issuance to exit.

It shows where S&F settles exposure and where markets provide execution.

# Full path

        ETC collateral
  -> OTC mint at oracle settlement
  -> S-BTC position token
  -> instant secondary-market trade
  -> OTC redemption at oracle settlement
  -> ETC returned

      

OTC changes supply. Market trading changes ownership.

# Simple numeric trace

These numbers are illustrative. Real output depends on pool state, funding, oracle price, fees, and debt.

1. Alice locks 1.00 ETC in an OTC entry for S-BTC.
2. The next oracle round settles, and Alice claims 100 S-BTC shares.
3. Funding and price movement change the displayed token balance. Alice's wallet may now show 101 S-BTC even though her internal shares are the accounting base.
4. Bob wants immediate exposure. The protocol settlement value is 1.05 ETC, but the market price is 1.07 ETC because buyers want S-BTC now.
5. Bob buys Alice's S-BTC in the market for 1.07 ETC. Protocol supply does not change; ownership changes.
6. Later, Bob redeems through OTC. The next oracle round values the position at 1.20 ETC before fees and debt.
7. If there is no pool debt, Bob receives the settled exit value.
8. If a black swan debt rule applies with a 25% profit haircut, Bob's principal is protected and only profit is discounted:

        principal: 1.00 ETC
profit:    0.20 ETC
haircut:   25% of profit = 0.05 ETC
exit:      1.15 ETC

      

The exact share count and displayed balance are not the important part of the example. The important part is the lifecycle: OTC creates and destroys supply at oracle settlement; Market trades existing tokens instantly.

# 1. Alice mints through OTC

Alice wants long BTC exposure and chooses to mint S-BTC directly from the protocol.

1. Alice locks ETC in an OTC entry.
2. The request waits for the next oracle round.
3. The oracle price settles.
4. Alice claims S-BTC.

The protocol has created new position-token supply and updated pool accounting at the oracle settlement price.

# 2. Alice holds a position token

Alice now holds S-BTC in her wallet.

The token can be held, transferred, pooled, quoted, or sold. The S&F contracts still define what the token represents: collateral backing, funding-rate accounting, oracle settlement, and redemption value.

# 3. Bob buys instantly on Market

Bob wants S-BTC now and does not want to wait for an oracle round.

Bob buys S-BTC from Alice, an AMM, or a market maker in a secondary market. The trade executes at the market price.

No new S-BTC is minted. No S-BTC is redeemed. Protocol supply does not change. Ownership moves from seller to buyer.

# 4. Market makers connect prices

If S-BTC trades above its OTC settlement value, a market maker can mint through OTC and sell into the market.

If S-BTC trades below settlement value, a market maker can buy from the market and redeem through OTC.

This spread is compensation for inventory, timing, funding, and settlement risk. It also helps connect instant market prices with slower protocol settlement.

# 5. Bob exits

Bob has two exit paths:

• sell S-BTC instantly in a secondary market;
• redeem S-BTC through OTC and wait for oracle settlement.

If Bob redeems through OTC, the protocol locks the position shares, waits for the next oracle price, burns the settled shares, and sends ETC according to the position value.

# What affects value

The exit value depends on:

• the tracked asset price;
• accumulated funding;
• pool liquidity and trader PnL;
• oracle settlement;
• secondary-market liquidity if Bob sells on Market;
• black swan debt rules in extreme cases.

The lifecycle is the same whether the user is Alice, Bob, an app, an agent, or a market maker. S&F settles the exposure. Markets trade the token.