In the previous article, we reviewed ETH Strategy’s core primitives: Permissionless Bonds and CDT. Long-dated ETH obligations stripped into clean components of principal and optionality. Together, they establish how the protocol raises capital, prices risk, and honors debt without relying on short-term market reflexivity.

That design solves one side of the balance sheet. The natural next question is what happens on the other side: once ETH is accumulated, how should it be used?

Holding treasury ETH passively is the safest option, but it leaves value on the table. Deploying it aggressively introduces counterparty risk and undermines the protocol’s debt obligations. ETH Strategy needs a mechanism that allows treasury assets to become productive without weakening the protocol’s promises to CDT holders.

This article introduces that mechanism.

The ETH Strategy Credit Facility allows STRAT holders to access treasury-backed ETH liquidity directly from the protocol. Rather than relying on external lending markets or discretionary governance, the protocol offers fixed-term ETH loans against its own capital structure. Crucially, this requires both equity and debt to participate, enforcing financial discipline through design rather than liquidation.

Borrowers bring both equity (STRAT) and debt (CDT) to the table. In return, the protocol advances ETH for a fixed term and charges a predetermined interest rate. That interest flows to STRAT stakers as protocol revenue. The trade is straightforward: borrowers believe they can deploy ETH more productively than the cost of borrowing, while STRAT stakers capture the spread as yield.

Crucially, CDT does not appear from thin air. It is minted by permissionless bonders, who receive long-dated ETH optionality. CDT represents the protocol’s outstanding liabilities. When CDT circulates in the market, it becomes a scarce resource that directly limits how much treasury ETH can be advanced (through loans or conversions). Borrow capacity is therefore anchored to real protocol debt, not synthetic leverage.

Requiring both STRAT and CDT as collateral is what keeps the system balanced. Posting STRAT aligns borrowers with the long-term success of the protocol: they retain exposure to ETH accumulation and staking yield. Posting CDT acknowledges the protocol’s debt obligations: borrowers cannot extract ETH without also holding a claim on the liabilities side of the ledger.

This dual requirement prevents free-riding and enforces symmetry between equity and debt. Anyone drawing liquidity from the treasury must participate in both sides of the balance sheet.

Loans are fixed-rate and fixed-term. Terms are locked in at origination, giving borrowers predictability and removing the risk of interest rate spikes. Positions are non-liquidatable until expiry. If a borrower chooses not to repay, the protocol keeps the collateral and releases the reserved interest to STRAT stakers.

The result is a loan facility that behaves less like a typical DeFi lending market and more like a structured treasury instrument. Liquidity flows out of the protocol in a controlled, term-based way. Debt holders remain protected. Equity holders are compensated. And the treasury remains solvent by design.

To understand ETH Loans in practice, it helps to walk through their lifecycle from the borrower’s perspective:

1. Dual-collateral deposit
   Borrowers supply both STRAT and CDT in a predefined ratio. This requirement ties each loan to both sides of the balance sheet at issuance: STRAT for equity exposure and CDT for outstanding protocol debt.

2. Loan issuance
   Once collateral is posted, the protocol issues a fixed-term loan (ex: 6-months). The borrower receives liquidity upfront and the loan parameters are locked at origination: principal, term, and interest rate. There are no margin calls or liquidation risk during the life of the loan.

3. Prepaid interest
   Each loan includes a fixed interest payment which is set aside at origination. The interest compensates the protocol for providing liquidity, while setting a clear hurdle rate for tokenholders. The Credit Facility also reserves an amount to cover unpaid loans, the delinquent fee.

4. Early repayment or rollover
   At any time before maturity, borrowers may repay principal to close the loan and recover their collateral. Alternatively, they may “roll” their loan to extend the term by providing additional collateral.

5. Expiry and settlement
   If the loan reaches maturity unpaid, the position settles automatically. The protocol retains the collateral and routes the reserved interest (including a delinquent fee) to STRAT stakers. No liquidation or cascading risk required.

All ETH Loans are issued in esETH, the internal accounting unit of ETH Strategy.

Borrowers receive esETH, which can be unwrapped 1:1 for an equivalent amount of treasury reserves. In practice, esETH represents a claim on treasury ETH and approved equivalent assets such as stETH, rETH, or other liquid staking tokens. It is the ledger by which the protocol measures how much ETH sits on the balance sheet at any moment.

This intermediate layer provides two important benefits.

First, it standardizes settlement. The protocol may hold reserves across multiple ETH-denominated assets, but esETH abstracts those differences away. Borrowers interact with a single unit of account, while protocol custodians retain flexibility over how reserves are allocated underneath.

Second, it isolates operational risk. By separating user-facing balances from the underlying assets, esETH creates a controlled boundary between protocol accounting and reserve management. Users transact against a stable interface, while the protocol can evolve behind it. This design reduces friction between systems and makes upgrades safer over time.

Like any lending market, ETH Strategy operates within a defined set of risk. These parameters are set by custodians and can evolve over time, but they are designed to be simple and predictable for borrowers. The three parameters that impact borrowers are:

Term

Loans are issued with a fixed maturity. At launch, ETH Loans will use a six-month term. This duration is long enough to support meaningful capital deployment while remaining short enough to keep the balance sheet responsive to changing market conditions.

Interest Rate

Each loan carries a fixed interest locked at origination, so borrowers know their financing cost upfront. Initial rates are expected to launch in the 4-6% APR range. Borrowing ETH from the protocol should require productive deployment, where the cost of capital acts as a hurdle rate for strategies expected to outperform passive staking.

Delinquent Fee

Each loan also includes a built-in reserve that acts as a safety buffer for unpaid principal. This reserve compensates STRAT holders for tail risk and ensures that expired positions settle cleanly without cascading failures. At launch, the delinquent fee will be set at 10% of collateral.

Other internal safeguards exist to protect solvency, but these operate as guardrails rather than user-facing variables. From a participant’s perspective, the system behaves like a fixed-term credit instrument with transparent costs and deterministic outcomes.

ETH Loans complete the other half of ETH Strategy’s balance sheet.

Permissionless Bonds define how the protocol issues debt and accumulates ETH. The Credit Facility defines how that ETH becomes productive without breaking the promises enshrined in CDT. Together, they form a productive closed loop.

The smart contracts implementing the full protocol design are currently under audit. We expect to spend some time hardening the codebase, validating edge cases, and ensuring that the security model matches the economic intent. This system sits at the core of ETH Strategy, and will launch only when we are confident it meets that standard.

In the previous article, we reviewed ETH Strategy’s core primitives: Permissionless Bonds and CDT. Long-dated ETH obligations stripped into clean components of principal and optionality. Together, they establish how the protocol raises capital, prices risk, and honors debt without relying on short-term market reflexivity.

That design solves one side of the balance sheet. The natural next question is what happens on the other side: once ETH is accumulated, how should it be used?

Holding treasury ETH passively is the safest option, but it leaves value on the table. Deploying it aggressively introduces counterparty risk and undermines the protocol’s debt obligations. ETH Strategy needs a mechanism that allows treasury assets to become productive without weakening the protocol’s promises to CDT holders.

This article introduces that mechanism.

The ETH Strategy Credit Facility allows STRAT holders to access treasury-backed ETH liquidity directly from the protocol. Rather than relying on external lending markets or discretionary governance, the protocol offers fixed-term ETH loans against its own capital structure. Crucially, this requires both equity and debt to participate, enforcing financial discipline through design rather than liquidation.

Borrowers bring both equity (STRAT) and debt (CDT) to the table. In return, the protocol advances ETH for a fixed term and charges a predetermined interest rate. That interest flows to STRAT stakers as protocol revenue. The trade is straightforward: borrowers believe they can deploy ETH more productively than the cost of borrowing, while STRAT stakers capture the spread as yield.

Crucially, CDT does not appear from thin air. It is minted by permissionless bonders, who receive long-dated ETH optionality. CDT represents the protocol’s outstanding liabilities. When CDT circulates in the market, it becomes a scarce resource that directly limits how much treasury ETH can be advanced (through loans or conversions). Borrow capacity is therefore anchored to real protocol debt, not synthetic leverage.

Requiring both STRAT and CDT as collateral is what keeps the system balanced. Posting STRAT aligns borrowers with the long-term success of the protocol: they retain exposure to ETH accumulation and staking yield. Posting CDT acknowledges the protocol’s debt obligations: borrowers cannot extract ETH without also holding a claim on the liabilities side of the ledger.

This dual requirement prevents free-riding and enforces symmetry between equity and debt. Anyone drawing liquidity from the treasury must participate in both sides of the balance sheet.

Loans are fixed-rate and fixed-term. Terms are locked in at origination, giving borrowers predictability and removing the risk of interest rate spikes. Positions are non-liquidatable until expiry. If a borrower chooses not to repay, the protocol keeps the collateral and releases the reserved interest to STRAT stakers.

The result is a loan facility that behaves less like a typical DeFi lending market and more like a structured treasury instrument. Liquidity flows out of the protocol in a controlled, term-based way. Debt holders remain protected. Equity holders are compensated. And the treasury remains solvent by design.

To understand ETH Loans in practice, it helps to walk through their lifecycle from the borrower’s perspective:

1. Dual-collateral deposit
   Borrowers supply both STRAT and CDT in a predefined ratio. This requirement ties each loan to both sides of the balance sheet at issuance: STRAT for equity exposure and CDT for outstanding protocol debt.

2. Loan issuance
   Once collateral is posted, the protocol issues a fixed-term loan (ex: 6-months). The borrower receives liquidity upfront and the loan parameters are locked at origination: principal, term, and interest rate. There are no margin calls or liquidation risk during the life of the loan.

3. Prepaid interest
   Each loan includes a fixed interest payment which is set aside at origination. The interest compensates the protocol for providing liquidity, while setting a clear hurdle rate for tokenholders. The Credit Facility also reserves an amount to cover unpaid loans, the delinquent fee.

4. Early repayment or rollover
   At any time before maturity, borrowers may repay principal to close the loan and recover their collateral. Alternatively, they may “roll” their loan to extend the term by providing additional collateral.

5. Expiry and settlement
   If the loan reaches maturity unpaid, the position settles automatically. The protocol retains the collateral and routes the reserved interest (including a delinquent fee) to STRAT stakers. No liquidation or cascading risk required.

All ETH Loans are issued in esETH, the internal accounting unit of ETH Strategy.

Borrowers receive esETH, which can be unwrapped 1:1 for an equivalent amount of treasury reserves. In practice, esETH represents a claim on treasury ETH and approved equivalent assets such as stETH, rETH, or other liquid staking tokens. It is the ledger by which the protocol measures how much ETH sits on the balance sheet at any moment.

This intermediate layer provides two important benefits.

First, it standardizes settlement. The protocol may hold reserves across multiple ETH-denominated assets, but esETH abstracts those differences away. Borrowers interact with a single unit of account, while protocol custodians retain flexibility over how reserves are allocated underneath.

Second, it isolates operational risk. By separating user-facing balances from the underlying assets, esETH creates a controlled boundary between protocol accounting and reserve management. Users transact against a stable interface, while the protocol can evolve behind it. This design reduces friction between systems and makes upgrades safer over time.

Like any lending market, ETH Strategy operates within a defined set of risk. These parameters are set by custodians and can evolve over time, but they are designed to be simple and predictable for borrowers. The three parameters that impact borrowers are:

Term

Loans are issued with a fixed maturity. At launch, ETH Loans will use a six-month term. This duration is long enough to support meaningful capital deployment while remaining short enough to keep the balance sheet responsive to changing market conditions.

Interest Rate

Each loan carries a fixed interest locked at origination, so borrowers know their financing cost upfront. Initial rates are expected to launch in the 4-6% APR range. Borrowing ETH from the protocol should require productive deployment, where the cost of capital acts as a hurdle rate for strategies expected to outperform passive staking.

Delinquent Fee

Each loan also includes a built-in reserve that acts as a safety buffer for unpaid principal. This reserve compensates STRAT holders for tail risk and ensures that expired positions settle cleanly without cascading failures. At launch, the delinquent fee will be set at 10% of collateral.

Other internal safeguards exist to protect solvency, but these operate as guardrails rather than user-facing variables. From a participant’s perspective, the system behaves like a fixed-term credit instrument with transparent costs and deterministic outcomes.

ETH Loans complete the other half of ETH Strategy’s balance sheet.

Permissionless Bonds define how the protocol issues debt and accumulates ETH. The Credit Facility defines how that ETH becomes productive without breaking the promises enshrined in CDT. Together, they form a productive closed loop.

The smart contracts implementing the full protocol design are currently under audit. We expect to spend some time hardening the codebase, validating edge cases, and ensuring that the security model matches the economic intent. This system sits at the core of ETH Strategy, and will launch only when we are confident it meets that standard.