> ## Documentation Index
> Fetch the complete documentation index at: https://docs.gomaestro.org/llms.txt
> Use this file to discover all available pages before exploring further.

# Dynamic hedging

> The delta-neutral hedge integrated into yield strategies to manage downside risk.

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Maestro's mining credit programs integrate a **dynamic, delta-neutral hedge** — designed to protect downside exposure. The hedge is run as a derivatives program: explicit delta targets, position sizing matched to each loan book, and rebalancing as prices move.

<Banner src="/images/concepts-section.jpg" alt="A snow-capped peak rising above a golden high-desert plain at dusk" position="center 35%" />

## Hedge construction

The hedge is assembled from standard institutional instruments:

* **Options collars** that cap downside on the underlying exposure.
* **Perpetual futures** that offset Bitcoin price movement on the loan book.
* **Hashrate derivatives** that hedge mining-specific risk.

Each position is **sized and rebalanced to the strategy** it protects.

## How the hedge works

A typical mining loan behaves like a **call option on Bitcoin**: the strike is the miner's **energy cost plus operating cost, denominated in BTC**, and the mining operation itself is the underlying — the [ASIC-as-Call-Option](/concepts/glossary) framework.

* When Bitcoin rises, mining profitability rises with it, and the strategy delivers its **base yield**.
* When Bitcoin falls, the delta-neutral hedge is **designed to offset the loss** on the loan book, rather than relying on a margin call or collateral liquidation.

This makes the design **counter-cyclical**: a BTC drawdown is exactly when hedge proceeds activate. In bear cycles, **hedge P\&L is designed to support repayment**; in all other cycles, mining is structured to deliver the base yield.

<Note>
  All yield figures are **indicative BTC APY ranges**, not guarantees. Actual returns vary by
  program, market conditions, and counterparty. Figures are net of fees and
  BTC-denominated. Past performance is not indicative of future results.
</Note>

A backtest of the 2021–2022 Bitcoin bear market — among the deepest drawdowns in Bitcoin's history — illustrates the intended behavior: a hedged loan book would have recovered principal in full, while comparable USD-financed miners faced margin calls and, in some cases, bankruptcy. It is a historical stress test of the mechanism's design, not a forward-looking projection or a guarantee.

## Layered with collateral

The hedge is the first line; **collateral sits behind it**. Each program is structured to be **150% asset-backed** and **100% delta-neutral hedged**, with **10–20% of principal held as pledged BTC reserves**. Pledged BTC, hashrate, and assets are held as **first-lien security**.

Should recovery ever be needed, it is structured to move senior to junior through a defined waterfall:

1. **Pledged BTC & accounts receivable** — liquid, BTC-denominated reserves.
2. **Hedge profits** — proceeds from the delta-neutral hedge as Bitcoin declines.
3. **ASICs** — the mining hardware.
4. **Power contracts** — contracted energy supply.
5. **Hosting contracts** — colocation and operations agreements.
6. **Energy infrastructure** — substations, transformers, and related build-out.
7. **Other real assets** — remaining pledged assets.

## What the hedge does not do

Dynamic hedging manages downside risk — it does not remove it. The hedge provides a **level of downside protection, not a guaranteed principal-protected strategy**.

<Info>
  **Black swan events** outside the modeled scenarios can still impair principal — no hedge covers every path. **Hedging also reduces yield**, typically **1–3%** versus an unhedged rate, the deliberate cost of managing downside. Borrower default, custodial failure, and extreme market dislocation remain possible. The hedge describes the **design intent** of the instrument, not a guarantee.
</Info>

## Program rigor

Before any program launches, Maestro runs simulations across scenarios and actively monitors live programs:

<CardGroup cols={3}>
  <Card title="Monte Carlo">
    Pre-launch simulations test miner resilience across a wide range of market conditions.
  </Card>

  <Card title="Historical backtests">
    Stress-tested through real markets (including the 2022 collapse) before capital is accepted.
  </Card>

  <Card title="Daily monitoring">
    Performance and risk thresholds are monitored daily.
  </Card>
</CardGroup>

See the hedge structure running live in the [SmashFi × Sazmining case study](/concepts/sazmining-case-study), and the vault it protects in [Mezzamine Credit](/yield-vaults/offerings/mezzamine-credit).

<Info>
  Maestro Institutional is operated by Go Maestro Inc. and is intended for accredited investors
  and qualified allocators only. Access is permissioned and subject to eligibility verification,
  with KYC required where a vault's terms specify; it is not directed at retail investors. Bitcoin and
  Bitcoin-denominated yield products carry material market, counterparty, regulatory, and
  technology risks. Yield figures are net of fees and BTC-denominated; past performance
  is not indicative of future results. Custody options vary by vault and strategy; depending on
  the vault, investors deposit directly into vault contracts or through a qualified custodian
  (Anchorage Digital).
</Info>