Sierra has added a new Available Yield Source of institutional digital asset credit by allocating to prime brokerage lending with FalconX

What is Institutional Digital Asset Credit?

Institutional digital asset credit involves extending short-tenor, overcollateralized loans to institutional counterparties, including prime brokers, hedge funds, market makers, quantitative trading firms, asset managers and family offices. Typically, lenders like Sierra have several layers of protections including overcollateralization, enforceable legal agreements, collateral and counterparty underwriting, and real-time risk monitoring. 

Institutional digital asset credit helps improve capital efficiency for institutional borrowers by utilizing their digital assets as collateral to source stablecoin loans from lenders like Sierra. This sector has grown to billions in outstanding loans across centralized intermediaries like FalconX and DeFi lending platforms like the Gauntlet Prime Vault on Morpho on Base.

Why FalconX?

As the leading institutional digital asset prime broker, FalconX and Pareto have launched an evergreen, fixed-rate credit facility. The facility deploys capital into a bankruptcy-remote special purpose vehicle, which originates secured loans to FalconX. The capital is deployed by FalconX for client margin needs, hedging operations, and proprietary trading.

The vault has built-in risk mitigants for institutional lenders like Sierra. Every underlying loan is overcollateralized against a minimum 110% coverage ratio at origination, held in segregated custody with collateral eligibility restricted to major digital assets, and governed by enforceable Master Loan Agreement covenants. The vault’s fixed-rate yield is set monthly and changes are communicated with notice to help mitigate yield volatility. M11 Credit, an institutional digital asset credit manager and risk curator retains full responsibility for borrower due diligence, underwriting, covenant monitoring, and loan cycle administration. OpenTrade’s institutional-grade vault infrastructure enables access and performance tracking of the FalconX vault.

New Yield Opportunity for Sierra Protocol and SIERRA

By adding institutional digital asset credit as an Available Yield Source, both the Sierra Protocol and the flagship liquid vault token, SIERRA, benefit through:

• Diversification: SIERRA's existing reserve mix is composed of investment-grade commercial paper, AAA-rated CLOs, perpetual futures basis, trade finance and DeFi lending. The FalconX vault adds institutional digital asset credit, which compliments DeFi lending with further credit, liquidity and operational risk mitigation

• Yield Enhancement: The vault currently yields ~7% and returned over 11% in 2025. The vault’s higher return than DeFi lending and investment-grade RWAs reflects concentration risk with FalconX as the sole borrower and reduced liquidity with monthly redemptions

• Scalability: Institutional digital asset lending has grown to billions in loans outstanding with the FalconX vault expanding to over $160M in TVL

Sierra’s Advisory Council has applied the Risk Framework to this yield source and approved it for SIERRA’s Reserve Management Strategy. Given the liquidity profile, the maximum portfolio allocation has been set at 20%. The allocation will be reviewed prior to the end of each loan cycle for submitting redemption requests. All stakeholders can review SIERRA’s allocation through the Transparency Dashboard and weekly Vault Reports.

Furthermore, all permissionless Vaults and LVTs issued by the Sierra Protocol can now allocate to this yield source. This new yield source expands the menu of options for asset managers, fintechs, exchanges and other issuing partners by enabling further customization of their target risk, liquidity and yield profile. Get in touch with the Sierra team to learn more here.