The Problem
On-chain savings today are tightly coupled: to save in Euros, you need a Euro stablecoin. To save in Gold, you need a tokenized commodity. This forces liquidity into fragmented, shallow markets with inferior returns compared to deep USD pools. The fundamental constraint:How Blend’s Infrastructure Solves This
Blend’s SMA architecture makes it possible for Risk Architects to break this constraint. They can design strategies where principal stays in deep, liquid USD positions while a synthetic overlay transforms the portfolio’s denomination into any target asset.How It Works
A Risk Architect designs a Basket with two components running simultaneously in the user’s Safe:1. Deep USD Strategies (~95% of principal)
The vast majority of capital is deployed into high-quality USD strategies - lending on Morpho, Aave, Euler, etc. This is where returns come from.2. Notional Hedge (~5% margin)
A small margin fraction collateralizes a synthetic position (via perpetual swaps or lending markets) that mirrors the target asset’s price movements. This is what transforms the portfolio’s denomination.The hedge is purely notional - it adjusts exposure behavior, not principal. The user’s USD principal remains untouched inside their Safe at all times.
What Happens When Prices Move
Target asset strengthens (e.g., EUR rises from 1.15)
The long hedge position gains value. Although the USD principal buys fewer Euros at the new rate, the hedge profit compensates - preserving purchasing power in Euro terms.Target asset weakens (e.g., EUR falls from 1.00)
The hedge incurs a loss. But the USD principal now commands more purchasing power in Euro terms, offsetting the hedge loss. Result: The portfolio tracks the target asset, earning USD returns minus the funding cost of the hedge.Notional Hedges vs. Leveraged Trading
This is not leveraged trading. The distinction matters:| Leveraged Perp Position | Notional Hedge | |
|---|---|---|
| Purpose | Profit from price direction | Transform denomination |
| Collateral at risk | Entire margin (can be liquidated) | Only small hedge margin (~5%) |
| What happens on liquidation | You lose your collateral | Portfolio temporarily reverts to USD - principal is untouched |
| Worst case | Total loss of margin | Temporary exposure drift |
What Risk Architects Can Target
Risk Architects can create Baskets targeting any asset with liquid derivatives markets:| Category | Examples |
|---|---|
| Fiat currencies | EUR, GBP, JPY, SGD, BRL, AUD |
| Commodities | Gold (XAU), Silver (XAG) |
| Crypto assets | BTC, ETH |
| Emerging markets | Any currency with sufficient perp/lending depth |
The Math (Simplified)
For a user depositing principal (P_0):- USD allocation: (\alpha \cdot P_0) where (\alpha \approx 0.95)
- Hedge margin: (\beta \cdot P_0) where (\beta \approx 0.05)
- Notional hedge size: equals the full principal to achieve 1:1 synthetic exposure
Full Mathematical Framework
See the formal equations, margin ratio definitions, and safety boundary conditions.
Example: EUR Savings Account
A Risk Architect creates a Basket for a EUR savings product. A user deposits $10,000 USDC:- $9,500 is deployed into USD strategies (Morpho + Aave) earning ~8% APY
- **10,000 notional
- The portfolio now behaves like Euros - tracking EUR/USD price movements
- Net return: ~8% USD returns minus ~2% funding cost = ~6% APY in EUR terms