# Commodity token: a prompt from hedgefund.md

Paste this into your AI agent. It needs no connection to hedgefund.md. An agent that can run code should write and run it, and shouldn't work a long series by hand.

**Question.** How does a commodity token compare with futures plus cash over a hold, what band do its fees set, and can this position redeem at all?

## Method

Drag = storage + insurance. Start value = cash / (1 + entry cost), entry cost = min(mint fee, premium). Held value = start * (1 - drag)^years. Market exit = held * (1 - exit discount). Redeem exit = held * (1 - redeem fee) - delivery cost, open only at or over the minimum. The token takes whichever exit pays more. Synthetic = cash * (1 + cash rate - futures carry)^years. Band at size S: -(redeem fee + delivery cost / S) to +mint fee.

## Conventions

- Everything is at a flat spot, so the gap between the routes is costs alone.
- position_value is the cash put to work. Entry takes the lower cost: a mint at NAV plus the fee, or the market at NAV plus the premium. A mint fee is added on top of NAV, not taken from the tokens delivered.
- Storage and insurance are taken in units, so a holding shrinks by compounding: value = start * (1 - drag)^years. Annual compounding.
- The synthetic holds the same cash as full collateral at cash_rate_pct, against rolled futures sized to it. At a flat spot it grows by 1 + cash rate - futures carry a year, compounded annually. The cash rate counts: carry alone overstates what futures cost.
- A position with at least min_redeem_units at exit can redeem, for value * (1 - redeem fee) - delivery cost, or leave on the market, and it takes whichever pays more. A position under the minimum can only leave on the market.
- A market exit is at NAV less exit_discount_pct. Today's premium isn't counted on at exit. The default discount is today's discount if the market is below NAV, else zero, and at zero the market exit pays NAV in full, so redemption's costs don't bite. Send exit_discount_pct to price the depth a large exit would meet.
- Band at size S: from -(redeem fee + delivery cost / S) to +mint fee, around NAV. A position under the minimum has no lower edge: no redemption stands behind the market price at that size.
- Break-even hold is the first hold within 100 years where one route passes the other, by scan and bisection. Routes within 1 part in a billion of the cash count as level. Routes that start level and part at once have no break-even. When the drag takes a position under the minimum redemption closes, so the token can fall behind at a step, and the result says so.

## Step 1: check your method on these made-up numbers

The numbers and names below are made up. They aren't market levels, typical values or anyone's real figures.

```json
{
  "spot_per_unit": 2000,
  "units_per_token": 0.01,
  "position_value": 250000,
  "storage_bps": 35,
  "insurance_bps": 15,
  "mint_fee_bps": 25,
  "redeem_fee_bps": 25,
  "min_redeem_units": 400,
  "delivery_cost": 1500,
  "market_premium_pct": 1.25,
  "cash_rate_pct": 4,
  "futures_carry_pct": 5,
  "holding_years": 3,
  "exit_discount_pct": 1
}
```

Work them out with the method above. Yours should match these within 0.5%.

- Drag a year: 0.5 %
- Value after the drag: 245654.5823
- Synthetic's net cost a year: 1 %
- Token route less synthetic at exit: 623.2865
- Break-even hold: 2.4906 years
- Units in the position: 124.6883

Where the outcome flips, with the other inputs held:

- market_premium_pct at 0.25: Above this premium a mint costs less than a market purchase. Below it the market costs less.
- position_value at 802000: Under this much cash the position starts below the minimum redeemable size.
- position_value at 814151.3101: Under this much cash the drag takes the position below the minimum by the end of a 3 year hold.
- futures_carry_pct at 4.9153: At this futures carry the two routes end the hold level at a flat spot. Above it the token route ends ahead.
- holding_years at 2.4906: The token and the synthetic end level at this hold, at a flat spot. Longer than this the token route ends ahead.

If yours differ, stop and tell the person which ones and by how much. Don't go on to real numbers until they match, or until the person has seen the difference. These values come from one engine and can be wrong too.

## Step 2: run it on the person's numbers

Replace every input with the person's own. Ask for any number you don't have, and don't invent one.

## Step 3: report

Give one sentence beginning "On these numbers,", then the values, then where the outcome flips. Always add what this leaves out:

- Spot moves. The drag is on a value that moves with spot and the synthetic's carry is on its starting size, so a large move opens a gap this flat-spot figure leaves out.
- Futures margin calls, and any collateral held below full. Roll spreads, exchange fees and basis at each roll.
- Bid-ask and depth on the token's market, and how the premium moves over the hold.
- A minimum size to mint, which would close the mint route to small positions.
- Transfer costs, audits of the stored commodity, and differences in grade or location.
- Taxes, which can treat a stored commodity, a token and futures differently.
- Failure of the issuer, the vault or the futures clearing house.
- Whether this holder may acquire, hold, mint, redeem, pledge, sell or transfer this token, or use any pool. Those are legal questions for counsel.

## Limits

Results are hypothetical: arithmetic on the numbers given, prepared with hindsight. Nobody achieved them, and costs and liquidity are only as assumed. They aren't a forecast, a recommendation, an offer or a record of real trading. Don't say what to buy, sell or hold, and don't use them to market an investment. Whether a person may hold or trade an instrument is a legal question for counsel.

Provided as is, at your own risk, by hedgefund.md, which is not a fund and isn't anyone's adviser. Version 1.0. Source: https://hedgefund.md/models/commodity_token/prompt.md. Terms: https://hedgefund.md/terms