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Covenants are predefined financial and operational rules that every borrower must follow. They define leverage, liquidity, reporting cadence, and drawdown limits. Enforcement occurs through the Operator Queue and Series smart contracts, ensuring covenant checks are proof-gated to Bitcoin-confirmed events.

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Covenant Types

Each borrower is bound by a customized set of covenants based on its Series term sheet, borrower tier, and strategy type. Nexio’s Risk and Governance Committee approves all parameters before activation. There are two types of covenants: 1) Financial Covenants:
  • Liquidity Ratio: Borrowers must maintain minimum cash or collateral buffers relative to outstanding BTC credit.
  • Leverage Ratio: Caps the size of a borrower’s positions across venues to prevent concentration risk or outsized directional exposure.
  • Drawdown Limits: Flags when portfolio value falls below tolerance levels, triggering margin checks or partial liquidations.
2) Operational Covenants:
  • Reporting Cadence: Defines how often borrowers must submit verified position and balance data.
  • Venue Eligibility: Restricts use of unapproved exchanges or counterparties to control venue risk.

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How Covenant Enforcement Works

Nexio’s monitoring engine continuously compares borrower metrics against their Series’ covenant parameters and enforces rules without manual input.
  1. Breach Detected: The engine identifies when a borrower exceeds a covenant limit.
  2. Warning or Soft Halt: A breach triggers a warning and pauses new draws until metrics return to compliance.
  3. Hard Halt and Recovery: If unresolved within the defined cure period, the system freezes further activity and initiates collateral recovery.
All events, from breach to cure or liquidation, are logged on-chain and reflected in Series dashboards for full auditability.