When Falcon Finance goes after steady yield to back USDf, it runs straight into interest rate and duration risk. That’s just reality when you’re dealing with yield-generating assets or anything tied to real-world finance. If you get this part wrong, you can end up in trouble without even noticing—your headline collateral ratio might look fine, but cracks can form underneath.
So, what’s duration? Basically, it’s how much an asset’s price jumps around when interest rates move. Longer-duration stuff drops harder when rates go up. That’s a problem for Falcon Finance because people can cash out their USDf anytime, but the assets behind it might be locked into longer-term deals. If interest rates go wild, that mismatch can sting.
Falcon keeps it simple: they treat USDf like a zero-duration liability. In plain English, users expect to get their money back at face value, no matter what’s happening out there. So the assets backing USDf? Those need to be short-term too. If they use anything long-dated, they slash its value and keep exposure super low.
Interest rate risk isn’t just about numbers on a screen. It hits liquidity, too. If rates jump and people rush to redeem, long-duration assets can show ugly losses at exactly the wrong moment. Falcon runs stress tests—think worst-case, rates jump and redemptions spike together—to make sure they’ve got cash on hand and don’t have to panic-sell.
There’s another risk hiding in plain sight: yield illusion. Sometimes, assets dangle juicy returns but pack in way more risk—maybe hidden duration, maybe sketchy credit. Falcon breaks down every yield into its parts: the safe rate, credit spread, liquidity premium. If something doesn’t add up? They call it fragile and move on.
They also steer clear of strategies that depend on always being able to sell or trade. If an asset can’t be dumped quickly at a fair price, it’s not backing USDf. Every asset gets a liquidity test before it joins the treasury—and after, too.
Governance is tight. They don’t just shift the treasury around on a whim. Every change gets a long look, an outside risk check, and a slow rollout. No sudden moves, no timing mistakes.
To deal with rate swings, Falcon likes laddered maturities and floating-rate stuff when they can get it. That way, they’re not caught off guard if rates spike, and cash keeps flowing in.
Bottom line: Falcon Finance runs its treasury to contain risk, not chase profit. They keep duration mismatch minimal, discount any shaky yield, and always put liquidity first. That’s how they make sure USDf stays redeemable at face value—even if the market gets rough. User trust comes first, and stability isn’t up for negotiation.
