Exchequer Protocol Overview

Introduction

Exchequer is the issuer standard for a new on-chain asset class: Downside-Protected Notes (D-Pros).

Any ERC-20 project can issue D-Pros with its token to give holders a defined outcome: participate in upside while receiving partial principal protection against drawdowns (up to 75%) over a fixed term, with on-chain, auditable collateral and no trusted intermediaries. D-Pros are built from first-principles LP-derivatives (LP forwards, LP calls/puts) and structured-note design, letting projects replace blunt token incentives with precise, transparent risk transfer.

The protocol is implemented as persistent, non-upgradeable smart contracts designed for censorship resistance, security, and self-custody. Issuance and settlement are fully on-chain and permissionless.

What is a Downside-Protected Note?

A D-Pro delivers two things over a fixed term:

• Downside protection: a predefined floor at maturity (0–75% protection).

• Upside participation: if the token appreciates, the note tracks upside per the issuance terms.

Two flavors (at a glance):

• Yield D-Pro — downside floor + trading-fee yield during the term; upside sourced via LP exposure.

• Growth D-Pro — downside floor + spot-like upside with no IL on the upside, no coupon during the term.

(Details, payoff diagrams, and examples are covered on the Note Types pages.)

1) Why issue D-Pros?

Stronger holder alignment than emissions. D-Pros explicitly subsidize downside at maturity, shifting part of price risk from buyers to the project on terms you control (floor, term, participation/cap). That credible protection attracts longer-horizon holders without spraying perpetual rewards. Costs are clear and budgetable.

AMM-native liquidity without rent-seeking. Issuance collateral deepens on-chain DEX liquidity as a by-product, reducing reliance on opaque, expensive MM/CEX arrangements. Liquidity stays transparent, programmable, and on-chain.

New-user acquisition that converts. Because risk is subsidized, D-Pros provide a clear floor + upside offer that appeals to users outside your current community—people who avoid uncushioned spot exposure but will try a defined-outcome note.

2) How D-Pros work (high level)

1. Issue the note on-chain and raise stablecoins/ETH from buyers.

2. Post on-chain collateral to fund the protection floor and specify upside per the note type (for Yield D-Pros this includes a project-owned LP position; for Growth D-Pros, upside is replicated without IL on the upside; LP may still be part of collateral).

3. Settle at maturity using a manipulation-resistant price input (e.g., 72-hour VWAP): holders receive the protection floor (paid in LP tokens) or the defined upside payoff, whichever is greater.

3) AMM-agnostic by design

D-Pros work alongside major constant-product AMMs (e.g., Uniswap, Balancer, Curve). Liquidity depth on the chosen venue is a by-product of issuance, not the product itself.

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(For specifics on redemption, LP-token settlement, ≤75% protection, and the differences between Yield D-Pro and Growth D-Pro, see the Note Types and Downside Protection pages.)