# How xTokens work

Each xToken mirrors Liminal Customized’s delta-neutral strategies but is managed via a single pooled position.

Let’s dive into how xTokens work:

#### **1. Pooled Capital**

When users mint xTokens with stablecoins, their deposits are grouped into one shared strategy for that market. Instead of running many small positions, Liminal Tokenized operates a single pooled delta-neutral line, and each xToken represents the holder’s share of it.

#### **2. Delta-Neutral Position**

The structure of the delta-neutral position depends on the yield source of the xToken.

For asset-based xTokens such as xHYPE, xBTC, and xETH, stablecoins are used to open a two-legged position on the underlying asset. The long spot leg acquires direct exposure using native assets and, where available, Liquid Staked Tokens to earn staking yield on top of funding.

For example, a significant portion of the current xHYPE spot exposure uses kHYPE, the HYPE Liquid Staked Token powered by Kinetiq, earning staking rewards and accruing Kinetiq Points distributed weekly to users. The short perp leg simultaneously shorts the equivalent notional on Hyperliquid perpetuals, using leverage to maximize capital efficiency while keeping net market exposure near zero.

The two legs offset each other directionally : the portfolio holds the asset but is short the same amount in perps, resulting in delta approximately equal to zero.

For lending-based xTokens such as xLEND, stablecoins are deployed directly into on-chain money markets. There is no spot position and no perpetual short.

Delta-neutrality comes from the nature of the instrument itself, lending rates are generated by borrower demand and do not depend on asset price direction.

The strategy earns the lending rate as yield while maintaining zero directional exposure.

#### **3. Yield & Token Value**

The strategy continuously earns structural yield from its position, whether funding payments, lending rates, or staking rewards depending on the xToken type. These earnings accumulate in real time, increasing the overall value of the xToken.

**For holders, the process is seamless: just hold xTokens and watch them appreciate over time.**

#### **4. Oracle** 

An **oracle** updates the **on-chain value of the xToken** to reflect accumulated yield. For example, 1 $xHYPE initially starts at $1, if the strategy earns 5%, **its price-per-share will update to $1.05**. This ensures transparency and accurate redemption.

#### **5. Custody and Management** 

Underlying assets are secured by institutional-grade custodians and smart contracts. \
For asset-based xTokens, this covers stablecoins, spot positions, and perpetual futures.\
For lending-based xTokens, this covers stablecoins held in lending protocol smart contracts.

#### **6. Scalability & Limits**

Because strategies are pooled, Tokenized can handle larger total capital per asset more efficiently than individualized accounts. Each pooled strategy will still have prudent TVL caps based on the capacity of its underlying market, whether perpetual market depth for funding-based xTokens or lending pool capacity for lending-based xTokens, but per-user limits can be higher since everyone shares a single large position. Operationally, one consolidated strategy is also easier to manage than many smaller ones, making Tokenized inherently more scalable.