RCBF Proposal | New Conversion Feature for LeoStrategy RWAs

LeoStrategy's team is currently building:

1. The New Order Book Virtualizer Market Maker (Virtualizer MM)
2. sLEO Collateralized Lending
3. LeoStrategy's Dashboard, Bridging & Lending App
4. Preparing for 2026's Rollouts

There is another element to our roadmap which we planned to add later. With the current market conditions, we have shifted our tune and believe that adding it sooner than later would be massively beneficial to the entire LeoStrategy economy we are building.

LeoStrategy is a permanent-capital vehicle. Our mission is to deliver useful products and services to the market while generating accretive capital to purchase $LEO and permanently stake it on our balance sheet. When we buy LEO (which we do every single day), that LEO is permanently staked for sLEO on our balance sheet and earns USDC from LeoDex's affiliate fees (and soon; LeoKit as well).

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TLDR;

LeoStrategy is accelerating the rollout of its RWA Conversion & Balance Sheet Facility (RCBF) to strengthen peg dynamics for its synthetic RWAs (TTSLA, TGLD, TNVDA), unlock two-sided trading, and materially increase protocol profitability.

The RCBF introduces a conversion backstop that enables fast arbitrage:

• Traders can buy discounted sRWAs and either HODL for yield or convert to LSTR for instant arbitrage profits
• LeoStrategy converts those sRWAs into treasury assets at a discount to correlation, holds them permanently, and earns yield
• That yield is paid in LSTR, creating daily buy pressure and long-term accretion for LSTR holders

This mechanism is capped, disciplined, and accretive by design. Conversion is a backstop, not a primary execution path. Its existence tightens pegs, increases trading volume, and makes sRWAs actively tradable rather than passive yield instruments.

Net result:

• Tighter sRWA pegs
• More two-sided trading activity
• Higher market-making profits (LeoStrategy’s #1 revenue engine)
• Lower yield obligations
• Stronger LSTR fundamentals via discounted asset acquisition + perpetual buybacks

RCBF was always part of the long-term roadmap. Based on live market data, LeoStrategy believes deploying it sooner rather than later will materially strengthen the entire ecosystem. The model is being introduced as a draft policy, with small-scale beta testing planned to validate behavior in real market conditions.

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Why Conversions?

Let's start with the Why. Convertibility on the LeoStrategy RWAs is an incredibly important aspect of the economy. Convertibility creates a two-way street for LeoStrategy's Synthetic RWAs (sRWAs).

sRWAs are designed to synthetically track and underlying:

1. TTSLA is 1:100 TSLA
2. TGLD is 1:100 GLD
3. TNVDA is 1:100 NVDA

The pairs are designed to track these underlyings primarily through rate policy. The rate policy is completely transparent, onchain and predictable. You can see the hourly Threads published by @ttsla.yield, @tgld.yield and @tnvda.yield who post the deviation & correlation of these tokens to their synthetically correlated underlyings.

Slow Arb vs. Fast Arb

Right now, the only way to arbitrage these pegs is to buy them when they deviate and wait. You get paid extra yield based on the correlation deviation. By waiting, you simply collect high yields until the pegs eventually catch up. This creates a bit of buy pressure to push the sRWAs toward their peg price.

Some things are best seen in a live environment. The yield-based peg dynamics are moving too slow relative to the underlyings. As we mentioned at the start of this post, there are two drivers that are making the deviation higher:

1. Stocks are going up
2. Crypto is going down

With TSLA, GLD and NVDA ripping higher while BTC has dropped -20% and altcoins even more than that, we are seeing the deviation of TTSLA, TGLD and TNVDA getting wider.

They will eventually reach peg parity solely from the rate policy. We are confident about this. The rate policy drives long-term demand as the predictable rates lead to demand for higher yields. Many economies operate in a very similar fashion.

This creates slow arb on the peg. The conversion facility we designed was going to be released later in 2026 but now we are consider releasing it sooner and seeing how it performs in a live environment.

The goal? To create fast arb on the pegs. This fast arb will lead to pegs being tighter which will have some important downstream effects:

1. Traders will have a two-way street: they can buy sRWAs confidently below the peg correlation and know they can either HODL for yield or immediately CONVERT for instant Arb profits
2. Hodlers will have more confidence in the sRWA pegs: right now, TSLA and GLD are ripping to new all-time highs yet the TTSLA & TGLD synthetic tokens are lagging behind. We want these gains to be seen by the synthetics and hodlers want to see it hit their balance sheet (even if they don't intend to sell right away). By having a tighter peg driven by conversions, we will see more confidence in existing + future sRWAs
3. LeoStrategy's Profitability will increase - you may be wondering how that's possible. There are a few drivers: 1). our yield obligations will be lower if the pegs are tighter. This is an obvious and immediate benefit to LeoStrategy. 2). Trading volume will increase signficantly if traders know they can choose to buy & HODL or buy & convert. This will create more buy and sell volume which = more Market Maker profits for LeoStrategy. Active markets are what make LeoStrategy profitable. Volatility = Vitality. We built sRWAs to be traded not to just sit idle
4. Increase the value of LSTR - this will happen based on the way our conversion facility is designed. It is designed to generate accretive value for LSTR equity. You'll see this in our design for the conversions and how they: 1). add ROI-positive assets to LeoStrategy's Treasury at a discount-to-market value. 2). deliver daily buy pressure to the LSTR token

When you zoom out, you will see that this RCBF feature will result in:

✅ Tightly correlated pegs for LeoStrategy sRWAs
✅ More Trading Activity on sRWAs
✅ More Market Maker Profits on sRWAs
✅ Less Yield Obligations for LeoStrategy = More Profit We Keep to Buy Additional LEO
✅ More Success on Existing + Future Launches From Increased Confidence

As we said at the start of this, we designed this during the initial design phase of sRWAs. We made some adjustments now that we've seen the sRWAs performing live in the real world. This is very important data that we've been collecting to ensure we can continue improving our model.

LeoStrategy is NOT a static project. We are constantly evolving and improving our approach. Remember our mission statement is to provide useful products and services to the market while generating accretive capital to purchase $LEO and perma-stake it on our balance sheet. Constantly improving our tokens, products and services is core to this mission statement.

RWA Conversion & Balance Sheet Facility (RCBF)

This is a draft policy which means this is the initial draft. We are looking for feedback on this and we are also internally continuing to improve this model.

We are proposing this model today, asking for your feedback and intending to run some small beta tests of the conversion feature in the coming days and weeks. The small beta tests will effectively allow us to do RCBF operations in small doses to see how the market reacts.

Purpose:

• Enforce correlation-driven peg dynamics
• Enable two-sided RWA markets
• Deploy balance-sheet capacity under disciplined issuance constraints
• Drive accretive value to LeoStrategy's Balance Sheet
• Increase LeoStrategy's Profitability

1. Mandate

The RWA Conversion & Balance Sheet Facility (“RCBF”) is a rule-based mechanism through which LeoStrategy may issue LSTR to acquire our own tokenized real-world assets (“RWAs”) at a discount-to-correlation value.

Users get to convert sRWAs to LSTR and then sell the LSTR for USD (or HODL the LSTR).

LeoStrategy purchases those sRWAs using LSTR equity at a slight discount to peg price via the haircut mechanisms.

The facility exists to:

• Improve secondary-market liquidity for RWAs
• Establish more durable peg dynamics (RWAs should trade within ~5% of their correlation at all times)
• Enable two-sided trading activity for LeoStrategy-issued RWAs
• Accumulate productive assets below intrinsic correlation value and permanently add them to LeoStrategy's Treasury
• Protect long-term LSTR holders through disciplined issuance
• Recycle RWA yield into balance-sheet strength and LSTR buybacks

2. Conversion Eligibility

Eligible assets are LeoStrategy-sRWAs (TTSLA, TGLD and TNVDA) as well as SURGE (Fixed-Income Convertible Bond).

The rollout plan would be:

1. Conversions only occur on specified assets in specified windows. Allowing us to test the facility and ensure it is accretive to all LSTR & other token holders
2. Over time as the model proves to work, conversions are opened up to all assets and all times (no scheduled windows, convert whenever you'd like)

3. Conversion Epochs

To start, the RCBF would activate in specified epochs. For example, we would announce TTSLA conversions are eligible this week. As we test, refine and improve the model it will trend toward being a full-time conversion feature (convert any time, anywhere on any sRWA).

• The facility operates in discrete epochs (e.g., weekly)
• Each epoch defines a Conversion Pool, representing the maximum USD value of LSTR issuance permitted for that period
• Conversion requests exceeding the pool are subject to pro-rata allocation (or refund)

This is designed to allow us to strategically scale the model.

4. Market Maker Incentive Loop

The RCBF is structurally aligned with LeoStrategy’s primary profit center: cross-chain market making on assets it issues.

By enforcing a credible peg corridor:

• sRWAs become actively traded instruments rather than just passive yield holdings
• Bid-Ask activity becomes stronger which leads to more trading which leads to more LeoStrategy MM profits
• Mean-reversion and arbitrage opportunities emerge for both users & the MM bots themselves
• Trading volume increases across supported venues as the secondary market is more confident about the peg dynamics

This increase in two-sided trading directly enhances market-making profitability. Market-maker profits, in turn, reinforce the system through $LEO purchases which bolster our balance sheet and further over-collateralize the asset stack upstream.

This creates a positive feedback loop between peg stability, revenue generation and the growth of $LEO on our balance sheet.

5. Conversion as a Backstop, Not a Primary Execution Path

The secondary market is intended to be the primary driver of trading for sRWAs. The conversion route allows arbitrage to flow. Think of it like a pressure valve. Sometimes, you need to let pressure build in the system and other times you need to allow that pressure to escape to create more room for positive system activity.

LeoStrategy's RCBF is much like a pressure valve. We use it as needed to let pressure stay in the system or release pressure from the system. The gauge for when we decide to use it and how much pressure we decide to dissipate is based on the correlation of assets. Allowing us to dynamically adjust the correlation of sRWAs to ensure that they trade in lock-step with their underlyings.

This dynamic is quite similar to HBD's conversion feature. The majority of hiveans don't use the conversion feature of HBD. Instead, arbitragers use the conversion feature and the average hivean actually buys/sells HBD on the open market.

RCBF for LeoStrategy's assets will work in a very similar dyanmic: most people will simply use the open market to buy/sell. Some arbitragers will use the conversion feature. The arbitragers create the tight market dynamics that allow open market (secondary market) dynamics to play out successfully for everyone else. This is how most markets work.

Another great example is USDT: have you ever actually converted USD to USDT or vice versa?

Probably not. But if we asked you if you ever bought or sold USDT, 99% of readers would say yes. The conversion feature maintains the peg for the secondary market users to seamlessly flow in and out of the asset.

• Conversion capacity is capped
• Conversion pricing deteriorates as demand increases
• Conversion timing (unstaking window) creates delayed gratification

These properties ensure that market participants prefer trading and arbitrage over conversion whenever possible. The conversion facility exists to anchor expectations and absorb excess supply only when market forces alone are insufficient.

6. Pricing & Haircut Mechanism

Conversions are priced using a market-clearing model:

• RWA value is determined using the 3-Day Moving Average correlation as posted on-chain by the respective RWA managers (@ttsla.yield, @tgld.yield, @tnvda.yield)
• A dynamic conversion haircut is applied, bounded by published minimum and maximum parameters

Haircut behavior:

• Lower utilization → lower haircut
• Higher utilization → higher haircut

The haircut compensates for balance-sheet risk, seniority compression, and LSTR dilution.

With the correct mechanisms in place: LSTR issued to purchase sRWAs ONLY HAPPENS if it is ACCRETIVE to LSTR holders. This means that LSTR is used to buy sRWAs at a discount to the correlation peg.

This creates a win-win scenario for arbitragers & LSTR holders:

1. Arbitragers get to make an instant profit by buying cheap sRWAs and converting them for LSTR (which they can hodl or sell for USD)
2. LSTR holders make an instant profit by purchasing sRWAs from arbitragers using new equity issuance at a discount to the sRWA market value. These sRWAs are then held permanently in the LeoStrategy Treasury wallet. The sRWAs then earn daily yield. The yield is compounded as LSTR into the perma-stake treasury wallet which means daily buy pressure buying back the LSTR that was previously issued

7. LSTR Issuance & Vesting

• LSTR issued via the facility may be subject to vesting or delayed settlement (7 day model proposed below)
• Total issuance per epoch is strictly capped (especially early on as we test, refine and iterate on this model)
• The facility may pause issuance if LSTR market conditions breach predefined safety thresholds

When a conversion occurs, LSTR is issued to the arbitrager who converted the sRWA. This LSTR is issued as Staked LSTR in their wallet (sLSTR).

This LSTR is sent to their Hive-Engine wallet (or Base Wallet when we release it on that side) as staked LSTR.

Similar to all Hive-Engine tokens, you can either leave it staked or you can unstake it back to liquid LSTR.

Since there are no staking rewards for LSTR, most arbitragers are likely to instantly unstake the LSTR.

We propose an unstaking time of 7 days with a daily payout. This means that if someone converts 10 TTSLA to 7 LSTR (for example), they will get 7 staked LSTR sent to their wallet on Hive-Engine.

Then, the user can unstake the 7 LSTR. For 7 days, they will get 1/7th of the total unstake amount (in this case, 1 LSTR per day for 7 days = 7 LSTR unstaked).

By introducing this unstake window, we allow conversions to be spread over a number of days as opposed to instantaneous. This prevents gamification of the LSTR price and bolsters point #5 above (using conversions as a backstop, not primary execution path: the average user should see conversions as being delayed gratification as opposed to going to the market to buy/sell).

8. What Happens With Converted sRWAs?

The RCBF owns the sRWAs permanently in its treasury wallet. These sRWAs are set to LSTR as their yield preference. This means that any sRWAs converted are permanently off the market + earning LSTR yield into the treasury wallet. Creating buyback pressure on the LSTR token while raising the claimable value for all LSTR holders (accretive).

9. Parameter Governance

Parameters for the RCBF are subject to change. This is a draft of the model and we are continuing to refine it. Once the RCBF feature goes live, we are always capable of tweaking and improving the model.

10. Comparison to Alternative Peg Models

The RCBF is distinct from:

• Hard redemption pegs, which are fragile under stress (failed products like LUNA/UST)
• Algorithmic pegs, which rely on reflexive issuance (HBD which trades roughly around $1 but can and has broken under extreme market conditions)
• Yield-only pegs, which lack downside enforcement (what we have now)

Instead, the RCBF establishes a market-enforced peg corridor supported by disciplined balance-sheet deployment, combining flexibility with credibility.

In other words: the RCBF combines the best of both worlds: you get flexible issuance that only happens when its accretive to LSTR holders while giving peg credibility and profits to sRWA holders.

11. Long-Term System End State

In a mature state:

• RWAs trade tightly around correlation values
• Conversion activity becomes infrequent (but extremely profitable when it occurs)
• Two-sided trading dominates price discovery
• Market-making revenue exceeds conversion-driven balance-sheet activity
• Treasury-held assets compound quietly
• LSTR buybacks compound in perpetuity (creating relentless buy pressure on LSTR)

The RCBF is designed to make itself progressively less necessary as market confidence increases. When it is necessary, there is a win-win model for the RCBF & sRWA converters:

1. The RCBF buys cheap sRWAs at a discount, then earns daily yield FOREVER which is autocompounded into permanent LSTR in the treasury wallet
2. sRWA converters get paid out LSTR at the USD value of the sRWA's intended correlation = instant arbitrage profit for maintaining the peg

12. Risk Factors

Key risks include:

• Parameter mis-calibration
• Prolonged macro drawdowns in underlying assets: leading to continual conversions until peg dynamics are restored
• Underperformance of market-making strategies

These risks are mitigated through issuance caps, dynamic pricing, asset-specific exposure limits, and conservative balance-sheet deployment.

In other words: by having a strict policy around how the RCBF operates to ensure that every conversion is accretive to LSTR holders we ensure that our bases are covered and these risks are nullified.

13. Definitions

• Correlation: The published 3-Day Moving Average reference value of an RWA relative to its underlying asset
• Peg Corridor: The price range within which an RWA is expected to trade under normal market conditions
• Conversion Pool: The maximum issuance capacity allocated for conversions in a given epoch
• Haircut: The discount applied to correlation value when converting RWAs into LSTR
• Balance-Sheet Absorption: The acquisition and retention of RWAs by the LeoStrategy Treasury

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