Custody

Throughout the whole flow of the leveraged tokens, the custody of funds always remains with the minting and redeeming user. When a user mints, they receive an ERC20 which represents fractional ownership of the USDC held within the leveraged token, and associated positions on Hyperliquid. The funds held within the leveraged token are fully owned by the leveraged token, and at no point does custody of the funds leave the smart contract. When funds are bridged to HyperCore, they are still owned and custodied by the Leveraged Token Smart Contract, and are held in the HyperCore balance of the smart contract. Orchestration of rebalances and bridging are done using API Wallets which allow the automation layer to bridge, open positions, modify positions, and close positions on behalf of the leveraged tokens. However, API wallets do not allow for the withdrawal or transfer of funds outside of the leveraged token. This architecture enables a trustless environment where permissions are enforced to be limited in scope to only what is needed to enable leveraged token functionality.