The Feasibility Study Behind Our 8 to 9.4 Percent Through-Cycle Band, Published in Full

Kerne publishes a modeled APY. Next to it, across our own surfaces, we have been publishing a sentence that caps our own number: our feasibility analysis puts the sustainable through-cycle rate for this design near 8 to 9.4 percent. It appears on the home page, on the stake page, in the dataroom, in the diligence dossier, on the transparency dashboard, on a token comparison page, and inside the JSON that /api/apy serves to machines.

On six of those surfaces the sentence called it our published feasibility analysis. It was not published. The work was real, the band was real, and the conclusion had been adversarially reviewed, but the document itself sat in an internal repository with no public URL. A protocol that sells a Disclosure Integrity Audit for exactly this failure mode, a public claim that does not resolve to the thing it claims, should not be the one making it. So here is the analysis. Nothing below is new work; it is the June 2026 review written out, re-run against today's live inputs, and left where anyone can check it.

First, what the headline number actually is

The APY on our surfaces is a formula, not a record. It has been published in full at /api/apy since the endpoint existed, and the response carries its own methodology string. As of the read behind this post it says:

Multiply it out: 3.0 times the sum of 2.20 and 3.99 percent, times 0.7768, times 0.90, is 12.98 percent. That is the number on the marketing page. It is arithmetic on six inputs. Two of them, the staking baseline and the funding rate, are read live from public sources; three more are fixed protocol parameters; and the sixth, the leverage multiplier, is the one this whole post is about. You can redo the whole line from the endpoint.

Where the 9.4 comes from

The top of the band is the same formula with an honest leverage assumption substituted in. In June 2026 we ran an adversarial review of the question "can this design honestly print a high number", with each yield lever quantified and then independently attacked. The reviewable conclusion was that 2.0x is the highest leverage this strategy can carry and still be describable as prudent for a peg-bearing dollar without a pre-funded insurance buffer sitting behind it.

Put 2.0x into the formula with the inputs that prevailed at the time, a 180 day mean funding of 4.39 percent and a staking baseline near 2.33 percent: 2.0 times 6.72 percent, times 0.7768, times 0.90, is 9.40 percent. That is the entire derivation of the upper bound. It is not a forecast and it is not a target. It is the ceiling the arithmetic permits under an assumption we can defend in a room with an auditor in it.

Re-run the same 2.0x ceiling against today's live inputs, funding at 3.99 percent and staking at 2.20 percent, and it gives 8.66 percent. The band still contains the honest ceiling a month of funding drift later, which is the modest test a through-cycle number has to keep passing.

Where the 8 comes from

The lower bound was produced by a different exercise and it is the more useful of the two. Rather than asking what the current strategy can print, it asked what a peg-safe basis dollar can sustainably earn across a full funding cycle using every lever available to it, with each lever priced separately and then risk-gated. The answer came out near 8 percent, and it came out there because every individual lever is capped by something structural.

A sane blend of those, weighted toward insured basis at 1.0x to 1.25x with a bill floor underneath it and small buffered allocations to reserve and curated lending, lands near 8 percent. That is the number, and the reason it is a floor for the band rather than a headline is that it is what the design can hold across a cycle rather than what it can print in a good month.

The leverage assumption is the whole gap

Take the two derivations together and the arithmetic says something plain. Evaluate the published formula at today's inputs both ways and the only thing separating the 12.98 percent headline from the 8.66 percent honest ceiling is the leverage term, 3.0x against 2.0x; the same market inputs, the same cost haircuts, one substitution. The 9.40 percent is that identical 2.0x ceiling read against the slightly stronger funding of a month ago, which is why it sits a little higher. Every point of distance between the headline and the honest ceiling is leverage the deployed strategy does not currently run.

And the deployed strategy currently runs neither. At genesis size the hedge is sized one for one: the short notional the engine targets is the vault's own exposed assets, which is what delta neutrality means and is the correct thing to run at this size. Leverage on the venue reduces the margin that has to be posted; it does not multiply the carry earned on the underlying. So the realized carry today is unlevered, and the modeled number assumes a multiplier the current deployment does not apply. We already say a version of this on the dossier. It belongs in the same document as the band.

You can see the consequence without taking our word for it. The realized figure on our own Honesty Index, read from skUSD share-price growth on chain, is about 0.21 percent annualized, and its entire provenance is one 0.10 kUSD strategist test transfer that the deployment registry records as a plumbing check rather than strategy carry. It decays toward zero until real distributions land. Our modeled number is a model. Our realized number is a record. The index publishes them side by side, with us in first place and worst, on purpose.

What the rest of the field actually realizes

A ceiling is easier to believe when it is checked against what comparable dollars are paying. These are not advertised rates. Each one is recomputed by us from the vault's own ERC-4626 share price over a trailing 30 day window, on the read behind this post:

The largest delta-neutral dollar in the market realizes under 4 percent on more than a billion and a half dollars staked. The best comparable performer in this set is under 5.5 percent. Against that field, a through-cycle ceiling of 8 to 9.4 percent is not a modest claim; it is an ambitious one that requires leverage and a funded insurance buffer to reach. Anyone quoting our 12.98 percent as an expected return should read this table first, and so should we.

What would have to be true to earn the top of the band

The gap between an unlevered genesis deployment and a defensible 2.0x is not a code change. It is a sequence, and each step is checkable from outside:

Capital. A basis strategy at four figures of TVL cannot express any of this. Fixed costs dominate and fills are noise. This one is binding and it is first.

A pre-funded insurance buffer. Leverage without a loss-absorbing layer in front of the peg is the structure that killed the dollars in the row above with zeroes next to them. The buffer has to exist and be sized before the multiplier moves, not after.

A de-levering governor. When funding turns negative the position has to shrink toward 1.0x automatically, and it must never step out of the hedge into naked exposure to chase a positive-funding hour. Stepping out is where a delta-neutral dollar stops being delta neutral.

Then actually running the levered carry, with the model reading the deployed leverage rather than a target, so the published number rises because the strategy changed and not because a constant did.

Until those are done, the honest description of the top of the band is that it is reachable, not reached. We would rather write that down than have someone else derive it.

Where 14 percent actually lives

The review that produced this band started from a harder question, whether a genuinely sustainable 14 percent was reachable for a dollar like this. The answer was no, and the reason is worth stating because a lot of the category is still implying otherwise. Every path to the teens on a peg-bearing dollar runs through leverage that a peg cannot safely carry. In the market as it exists, the teens are only earned in explicitly labelled first-loss junior tranches, instruments whose holders are told plainly that they absorb the losses first. That is a legitimate product. It is not a stablecoin, and it is not what kUSD is. A dollar that promises the peg and the junior-tranche yield at the same time is promising something the structure cannot deliver, and the last two years have a list of names that demonstrate it.

How to check every number here

The modeled APY, its six inputs and its methodology string are at /api/apy. The realized figures for Kerne and every comparable in the table above, with the from-block and to-block for each read, are at /api/honesty-index and rendered at /honesty-index; the method is to read decimals and convertToAssets at both blocks and annualize over the real elapsed time, which is the same procedure you can run against us. The reserve side is at /api/por, signed hourly at /api/por/signed. All of it is collected in one machine-readable document at /facts.json. The formula behind the model is written out at /docs/yield-methodology.

Figures are as of July 21, 2026 and nothing here is investment advice. The modeled APY, its inputs (Lido 7 day SMA 2.20 percent, Hyperliquid 180 day trailing funding 3.99 percent, 22.32 percent strategy costs, 10 percent insurance allocation, 0 percent Genesis protocol fee, 3.0x target leverage) and the resulting 12.98 percent are the live values served by kerne.fi/api/apy on that date and move with market inputs. The 9.40 percent upper bound is the same published formula evaluated at 2.0x leverage with the 4.39 percent trailing funding mean and roughly 2.33 percent staking baseline recorded by the June 20, 2026 internal review; evaluated at today's inputs the same 2.0x ceiling gives 8.66 percent. The 8 percent lower bound is the risk-gated blend described above and is a judgement about sustainable structure, not a measured rate. Realized figures for every token in the comparison table are recomputed by Kerne from each vault's own ERC-4626 share price over a trailing 30 day window and are republished hourly at kerne.fi/api/honesty-index, each row carrying the from-block and to-block needed to recompute it; Kerne's own realized figure covers a shorter 17 day window because the vault was redeployed on July 3, 2026, and derives from a single 0.10 kUSD distribution recorded as a plumbing test rather than strategy carry. Kerne is pre-audit: on its first external audit (Hexens), fieldwork ran from July 13, 2026 and the initial report landed on July 20, 2026, with remediation underway. The code is not yet through a completed external audit.