# Permissionless Bonds

> Ultrasound Convertibles

**Published by:** [ETH Strategy](https://blog.ethstrat.xyz/)
**Published on:** 2026-01-16
**URL:** https://blog.ethstrat.xyz/permissionless-bonds

## Content

This article builds on our previous post, which outlined the philosophy behind building an autonomous ETH accumulation engine. Here we revisit the core primitives: Long Bonds, CDT, and debt redemption. Some of this will feel familiar. Some is intentionally different. The design has evolved based on our experience since launch. If you want to see the original blueprint, start with the initial whitepaper. This post focuses on what changed, and why.Ultrasound ConvertiblesOriginally, long bonds were framed as debt with an embedded convertible note for STRAT. Capital in today, STRAT exposure over time. That abstraction was useful for bootstrapping TVL, but it also blurred the core trade: ETH Strategy is willing to sell volatility to stack more ETH. Long bonds now come with dual conversion rights: ETH or STRAT. You choose. This mirrors our approach to STRAT staking rewards. When the protocol owns its liquidity, issuing STRAT while retaining treasury assets is largely an internal accounting choice, shifting ETH between buckets on the balance sheet. For users, however, ETH’s liquidity is the point. Converting into a blue-chip asset with the deepest onchain markets makes the product simpler, more portable, and easier to price. Our goal is straightforward: ETH Strategy will be the premier source of cheap, long-dated call options on ETH. Mechanically, bonders deposit stablecoins and receive two assets:CDT, a token representing the bond’s principal (“debt”), anda long-dated, out-of-the-money call option issued by the protocol.Example Convertible NFTSettlement is flexible. Anytime before expiry, bonders may redeem by paying back CDT to retrieve the underlying ETH (or its equivalent in STRAT). After expiry, redemption settles to the underlying dollar value of the bond.Protocol DebtWith Long Bonds positioned as ETH-denominated obligations, CDT (Convertible Debt Token) becomes the protocol's natural unit of account. CDT is:A fungible claim on protocol debtBacked by the treasury’s balance sheetFreely tradable, permissionless, and transparentThink of CDT as a protocol-wide principal token (PT). It doesn't promise yield, it promises repayment under defined conditions. By stripping convertibles into separate debt and option components, DeFi enjoyooors can monetize each leg indendently: hold the upside optionality, sell the principal, or redeploy both as they see fit. Crucially, CDT is scarce and valuable. It represents the protocol’s current liabilities, and as ETH Strategy grows, CDT becomes a core primitive for pricing risk, settlement, and redemption.RedemptionIn our initial design, we proposed a separate mechanic (Short Bonds) to facilitate debt redemption. Essentially a debt-for-equity conversion. While we’re still bullish on this approach, it requires too many leaps of faith for early market participants. So the initial permissionless phase will launch with something simpler: direct debt redemption. From the protocol’s perspective, there is a price below which it makes sense to buy and burn CDT. That threshold depends primarily on ETH’s market price relative to the total debt outstanding. Under the right conditions, debt buybacks can be immediately accretive to STRAT holders ETH Strategy’s buyback facility isn’t infinite. It will have a defined budget and (most likely) a daily limit, similar in spirit to bounded facilities like MakerDAO's original PSM. Beyond the defined buyback price, the protocol will provide concentrated liquidity in the $0-1 price range for CDT. This liquidity will be intentionally thin at launch, as we expect market actors to deepen liquidity over time as confidence in CDT’s floating peg is established.Strategies UnlockedThese core primitives open up a new design space in DeFi. Some use cases include:Liquidity Without Liquidation: bonders can treat the protocol as a debt facility: deposit capital, receive immediate liquidity via CDT, and retain ETH upside via the long-dated call option. This is the trade if you believe ETH is headed higher over time, but need liquidity today without the risk of forced liquidation.Convertible Looping: speculators can created levered ETH exposure by bonding, selling CDT, and repeating the process. Effectively looping their position to stack more long-dated ETH options (or STRAT for that matter).Volatility Harvesting: sophisticated traders can harvest volatility from the embedded call option, dynamically managing delta and monetizing the option's convexity. This is essentially what we productised with ESPN, but individual actors can deploy their own volatility strategies directly on top of our convertibles.CDT Basis Trade: traders seeking dollar-denominated returns can buy CDT below face value and earn the spread as CDT converges toward redemption value. When CDT trades at a discount, it creates a straightforward credit/basis trade.These primitives also enable a new generation of structured products. Think: a stablecoin whose yield is powered by ETH volatility; an onchain “vol index” that gives direct exposure to ETH vol without getting farmed by carry; and even degen experiments that recycle trading fees into bonding and use in-the-money settlement proceeds to buy and burn supply.Looking AheadWe’ve talked about these primitives for over a year, so this article is more of a refresher. A few small tweaks make the system easier to understand, easier to bootstrap, and more directly aligned with the core trade. With ETH-denominated convertibles and CDT mechanics locked in, the remaining pieces fall naturally into place:STRAT captures the convex upside of protocol leverageCDT pricing expresses the market cost of leverageSTRAT staking distributes protocol revenueThe result is a system where debt, optionality, and redemption are cleanly separated (and composable) from day one. Long Bonds give users long-dated ETH upside, CDT makes protocol debt liquid and tradable, and ETH settlement removes unnecessary abstraction while anchoring the product to the deepest liquidity in crypto. Next, we’ll move one layer down the stack: how to make treasury assets productive without compromising the protocol’s debt obligations. The next article will introduce our updated lending design, a mechanism that lets STRAT holders access treasury-backed liquidity while keeping CDT holders protected and the balance sheet intact.

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