RiskON & RiskOFF
Version 12.06.25
Introduction
To tokenize risk, TRP uses a novel mechanism called SMART—short for “Split Mechanism for Asset Risk-Tokenization.” This mechanism enables any crypto asset to be split into two “SMART Tokens” with distinct risk profiles. TRP has created several types of SMART Tokens. This product specification focuses on RiskON/RiskOFF .
1. Product Description
Upon deposit by a trader of [x] units of an eligible cryptocurrency ("Underlying Collateral" or "Underlying Cryptocurrency"), TRP will issue to the trader two SMART Tokens that are designed to have an aggregate Net Token Value ("NTV") equivalent to the value of the Underlying Collateral. The design segregates the risk of owning the Underlying Collateral into a lower-risk token named RiskOFF and a higher-risk token named RiskON.
RiskOFF is designed to have lower volatility and beta relative to the Underlying Cryptocurrency while RiskON is designed to have higher volatility and beta relative to the Underlying Cryptocurrency. While RiskOFF provides exposure to the Underlying Cryptocurrency at dampened volatility levels, RiskON provides leveraged upside exposure. Neither SMART Token takes on any debt in the pursuit of these objectives; leverage is achieved synthetically through embedded options positions.
For each unit of Underlying Cryptocurrency deposited, the trader shall receive 1 unit each of RiskON and RiskOFF1. For example, if a trader deposits 1 BTC with the platform, they shall receive 1 RiskON BTC and 1 RiskOFF BTC SMART Token. At any point in time, by design, NTV of RiskON + NTV of RiskOFF = Price of Underlying Cryptocurrency.
In order to redeem the 1 unit of Underlying Collateral, a trader must deposit 1 unit each of RiskON & RiskOFF2.
2. Investment Period (Epoch)
Depending on the type of SMART Token, an investment period (each an "Epoch") can run for a term of 91 days (a "quarterly Epoch"), 30 days (a "monthly Epoch") or 7 days (a weekly Epoch). The period shall be specified for each SMART Token pair at product launch3. The exact Epoch end date and time will be published at the commencement of each Epoch.
On the last day of each Epoch, each token shall settle and be rebalanced into new RiskON/RiskOFF SMART Tokens for the next Epoch. The settlement and rebalancing process is described in detail below.
3. RiskOFF Token Specifications
The RiskOFF Token consists of:
[x/2] units of the Underlying Cryptocurrency
One short out-of-the-money European-style call option on [x/2] units of the Underlying Cryptocurrency
One long out-of-the-money American-style down-and-out barrier put option with a collateral rebate, also on [x/2] units of the Underlying Cryptocurrency
Barrier Put Mechanism: The barrier put will knock out (become worthless) if the Underlying Cryptocurrency price touches or falls below the Barrier Level during the Epoch. Upon knock-out, RiskON shall pay RiskOFF a collateral rebate. This rebate is approximately equal to the value of the Underlying Cryptocurrency held by RiskON at the time of knock-out (which represents RiskON's remaining claim on the deposited collateral). See “Barrier Knock-Out Event” section for further details.
The strikes for the two options are selected such that the proceeds from the sale of the short call exactly offset the cost of buying the down-and-out barrier put, forming a "costless collar." Both option positions are risk-reducing positions that should, in combination with the underlying crypto position, result in an investment with significantly lower volatility than holding the Underlying Cryptocurrency directly.
RiskOFF NTV = (x/2) × Underlying Cryptocurrency Price - Call Value + Put Value
The prices and NTV of the RiskOFF token (and the embedded options) are denominated in USD.
4. RiskON Token Specifications
The RiskON Token consists of:
[x/2] units of the Underlying Cryptocurrency
One long out-of-the-money European-style call option on [x/2] units of the Underlying Cryptocurrency
One short out-of-the-money American-style down-and-out barrier put option with a collateral rebate obligation, also on [x/2] units of the Underlying Cryptocurrency
The strikes for the RiskON options are identical to those in the RiskOFF token, ensuring the options positions of RiskON exactly offset the options positions of RiskOFF. The embedded options in RiskON, in combination with the underlying crypto position, result in an investment with enhanced or leveraged market exposure beyond the strike levels4.
RiskON NTV = (x/2) × Underlying Cryptocurrency Price + Call Value - Put Value
The prices and NTV of the RiskON token (and the embedded options) are denominated in USD.
5. Option Parameters
The following table summarizes the typical option parameters for each Epoch. Actual parameters are published at the start of each Epoch based on prevailing volatility conditions.
Parameter
Typical Value
Notes
Put Strike
90% of price of Underlying Cryptocurrency at the start of the Epoch
10% out-of-the-money
Call Strike
~112-115% of price of Underlying Cryptocurrency at the start of the Epoch
We back into the call strike in order to make the put and call a costless collar
Barrier Level
~45% of price of Underlying Cryptocurrency at the start of the Epoch
55% decline within an Epoch triggers knock-out
Rebate Level
~44% of price of Underlying Cryptocurrency at the start of the Epoch5
Rebate is slightly less than the barrier level so that RiskON declines to near 0 but is never completely wiped out.
Option Style - Call
European
Exercisable at expiry only
Option Style - Put
Down-and-out barrier option
Knock-out monitored every second
6. The Risk-Splitting Mechanism
The options in each RiskON/RiskOFF token pair are exactly equal positions but opposite in sign. The short call in RiskOFF has identical specifications to the long call in RiskON. The short put in RiskON has identical specifications to the long put in RiskOFF. By combining one unit of RiskON and one unit of RiskOFF, the options positions cancel, leaving only exposure to the Underlying Cryptocurrency.
Creation Process: When a trader deposits one unit of an Underlying Cryptocurrency with TRP, they receive one unit of RiskOFF and one unit of RiskON. The trader may then choose to sell either token and/or buy additional tokens on the platform's secondary marketplace. A trader can create SMART Tokens at any point in the Epoch.
Redemption Process: At any time during an Epoch, a trader may return one unit of RiskOFF and one unit of RiskON to the platform to redeem one unit of the Underlying Cryptocurrency.
The Creation and Redemption processes and the 1:1 equivalency of an Underlying Cryptocurrency and SMART Tokens ensures that the aggregate NTVs of the two tokens remain tethered to the price of the Underlying Cryptocurrency and that the TRP platform maintains zero net delta exposure.
7. Pricing: Market Prices and NTVs
TRP uses proprietary volatility forecasting models (two-component GJR-GARCH) and option pricing models (Black 76 for vanilla options; Merton/Reiner-Rubinstein framework for barrier options with SABR stochastic volatility adjustments) to calculate:
Initial option strikes that form a costless collar at Epoch start
Real-time (second by second) NTVs throughout the Epoch
Transparency: All model parameters (input volatility, risk-free rate, strikes etc.) and the decomposition of NTVs (standalone value of each embedded call and put + value of Underlying Cryptocurrency) are published in real-time, allowing traders complete transparency on pricing methodology.
Important: NTVs are reference prices calculated by TRP's models. The actual market prices on the secondary marketplace may differ from NTVs based on supply and demand. Traders should be aware that they may buy or sell at prices that differ from the published NTV.
8. Secondary Market
TRP provides a Risk Marketplace for secondary trading of RiskON and RiskOFF SMART Tokens. Traders may use the secondary market to:
Trade based on perceived mispricing relative to NTVs
Tactically switch between RiskON and RiskOFF based on market sentiment
Convert to or from Underlying Cryptocurrency exposure
A trader that wants exposure to RiskON or RiskOFF can either go through the splitting process and then swap out of the undesired SMART Token into the desired SMART Token or directly swap into the desired SMART Token on the risk marketplace.
9. Settlement and Rebalancing Process
End of Epoch Settlement: On the settlement date, NTVs reflect the intrinsic value of each token in USD based on the settlement price of the Underlying Cryptocurrency.
Rebalancing: Simultaneously with the end of an Epoch, a new Epoch begins. New RiskON/RiskOFF tokens are created such that the embedded options again form a zero-cost collar at the new Epoch start price. Each trader's expiring token USD value is used to determine their holdings in the new tokens. The token balances are adjusted ("rebased") such that the trader's combined USD NTV in the new tokens equals their expiring USD NTV.
At rebalance, traders holding the token with the higher NTV at Epoch end will receive both RiskON and RiskOFF tokens in the new Epoch (see Rebalance for explanation). Traders holding the lower-NTV token will continue to hold only that token type in the new Epoch. The settlement and issuance occur through an atomic swap.
9.1 Barrier Knock-Out Event
If the Underlying Cryptocurrency price declines to the Barrier Level at any time during an Epoch:
The down-and-out barrier put is extinguished (knocked out)
RiskON pays the Collateral Rebate to RiskOFF, which approximately equals the value of RiskON's remaining share of the Underlying Cryptocurrency at the knock-out price
The current Epoch terminates immediately
A new Epoch commences with new strikes, and token balances are rebased as described above
At barrier knock-out, RiskON's NTV will be near zero, as almost its entire claim on the collateral is transferred to RiskOFF.
10. Risk Factors and Disclosures
IMPORTANT: traders should carefully consider the following risk factors before investing in RiskON or RiskOFF SMART Tokens. This list is not exhaustive.
10.1 RiskON-Specific Risks
Total Loss Risk: If the Underlying Cryptocurrency price declines to the Barrier Level, RiskON's NTV will be reduced to near zero and traders in RiskON can lose substantially all of their investment.
Short Put Obligation: RiskON has a short put position. If the underlying declines below the put strike (until barrier), RiskON has levered downside exposure as a result of this obligation.
10.2 RiskOFF-Specific Risks
Barrier Knock-Out Risk: If the barrier is breached, RiskOFF's protective put is extinguished. While RiskOFF receives the collateral rebate, subsequent declines below the barrier level will not be protected unless RiskOFF is able to sell the RiskON tokens it receives in the new Epoch.
Capped Upside: Due to the short call position, RiskOFF's upside is capped at the call strike level. If the underlying appreciates significantly, RiskOFF will underperform.
Not a Stablecoin: RiskOFF is NOT a stablecoin. Its volatility is significantly lower than the Underlying Cryptocurrency but it can still lose value. If the Underlying Cryptocurrency declines, RiskOFF will lose value 1:1 upto the put strike. It will be protected from any further declines upto the Barrier Level.
10.3 General Risks
Cryptocurrency Volatility: Cryptocurrencies are highly volatile. Both SMART Tokens derive their value from the Underlying Cryptocurrency and embedded options on it.
Model Risk: NTVs are calculated using TRP's proprietary models. These models may not accurately reflect true market values. Actual market values based on supply and demand may differ materially from NTVs.
Liquidity Risk: The secondary market may have limited liquidity. Traders may not be able to sell tokens at fair value or in a timely manner.
Smart Contract Risk: RiskON/RiskOFF are implemented via smart contracts. Bugs, exploits, or vulnerabilities could result in loss of funds.
Rebalancing Risk: At rebalance, traders may receive a different token mix than they previously held. This is a structural feature of the protocol given our rebalancing mechanism.
No Margin Calls, But Potential Total Loss: While the protocol does not issue margin calls, RiskON traders face the possibility of near-total loss of principal if the barrier is breached.
Regulatory Risk: The regulatory environment for cryptocurrency derivatives is uncertain and varies significantly across geographies. Regulatory climate could affect the availability of these tokens in certain jurisdictions.
11. Disclaimers
Past Performance: Backtested and historical performance data shown in TRP materials are for illustrative purposes only. Past performance is not indicative of future results. Actual results may differ materially from backtested results.
Not Investment Advice: This document is for informational purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Investors should consult their own advisors before making any investment decisions.
Suitability: RiskON is not a suitable long-term investment given the possibility of near-total loss in extreme market downturns.
No Guarantee: TRP does not guarantee any returns, the accuracy of NTVs, or the availability of the platform.
Footnotes:
1 1 BTC is just for illustration purposes, the mechanism works similarly for fractional units of collateral. Similarly while the example uses BTC, the mechanism applies to other cryptocurrencies supported by TRP. 2 1 unit used for illustration purposes only, the mechanism works similarly for fractional units of Underlying Cryptocurrency and SMART Tokens. 3 An Epoch of 91 days, 30 days or 7 days may not precisely align with calendar quarters, months or weeks. 4 RiskON is 2:1 levered outside the strikes 5 (Barrier % level + 1%) x price of Underlying Cryptocurrency at the start of the Epoch
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