Scenario Analysis
Understanding Price Movements and Impact on Portfolio
Given Seablocks’ delta-neutral hedging strategy, the impact of BTC price fluctuations on the portfolio composition is a key consideration. Since the protocol maintains a long position in spot assets while holding short derivatives positions, a natural question arises:
"How does a change in BTC price affect the underlying asset backing?"
This question provides an opportunity to analyze how the protocol dynamically manages its asset composition under different market conditions.
Overview
Seablocks employs a mix of inverse coin-margined and linear USD-margined contracts across multiple exchanges. Each exchange has unique contract specifications, margining methods, and risk frameworks, which impact how unrealized and realized PnL is settled. These differences arise from:
Variations in exchange-specific risk systems and contract specifications.
Inverse contracts settling in BTC terms, while linear contracts settle in USDT.
Key Definitions
Unrealized PnL: Profit or loss from an open position based on the difference between the entry price and the current market price. However, it has not yet been settled in the portfolio’s collateral balance.
Realized PnL: Profit or loss that has been settled in the collateral balance after a position is closed.
Since Seablocks primarily settles PnL in BTC or USDT depending on the exchange, a change in BTC price does not require immediate portfolio rebalancing. Instead, unrealized PnL is naturally realized through redemptions or rolling hedging positions across exchanges based on risk and return considerations.
BTC Price Decrease Scenario
If BTC price declines after the opening of hedging positions, the derivatives portfolio will show unrealized profits across both inverse and linear margined contracts. These unrealized gains are denominated in BTC and USDT, with no immediate impact on the protocol’s asset holdings.
BTC Price ($)
Inverse Contract Unrealized PnL (BTC)
Linear Contract Unrealized PnL (USDT)
Total Portfolio Value (USD)
10,000
0.0
0
10,000
9,000
0.1
900
10,000
8,000
0.2
1,800
10,000
7,000
0.3
2,700
10,000
6,000
0.4
3,600
10,000
The portfolio naturally accumulates unrealized PnL as BTC price drops.
The total USD value remains stable despite variations in unrealized BTC and USDT balances.
Portfolio rebalancing occurs dynamically as redemptions and hedging rolls take place.
BTC Price Increase Scenario
If BTC price rises, the derivatives portfolio accumulates unrealized losses across inverse and linear margined positions. However, these losses are offset by the appreciation of spot BTC holdings, maintaining overall portfolio stability.
BTC Price ($)
Inverse Contract Unrealized PnL (BTC)
Linear Contract Unrealized PnL (USDT)
Total Portfolio Value (USD)
10,000
0.0
0
10,000
11,000
-0.1
-1,100
10,000
12,000
-0.2
-2,200
10,000
13,000
-0.3
-3,300
10,000
14,000
-0.4
-4,400
10,000
Losses in derivatives contracts are neutralized by increases in the spot asset value.
The protocol ensures liquidity reserves to meet settlement currency requirements for margin calls.
BTC and USDT balances fluctuate, but total portfolio value remains stable.
Scenario Management & Portfolio Adjustments
To maintain economic efficiency and risk optimization, Seablocks does not need to rebalance the portfolio for every small BTC price movement. Instead, management adjustments occur in a structured manner:
Natural Mint & Redeem Flows: The inflow and outflow of USDi organically realize unrealized PnL over time.
Automated Rebalancing: The system periodically rolls hedge positions between exchanges to optimize collateral efficiency.
Dynamic Risk Adjustments: The proportion of inverse vs. linear contracts is monitored and adjusted to manage USDT exposure.
By actively managing the portfolio and dynamically adapting its hedging positions, SeaBlocks ensures long-term economic stability, minimizing the impact of extreme market conditions.
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