How It Works
Last updated
Last updated
Theo is built from the ground-up to provide access to sophisticated trading opportunities with minimal trust assumptions. In contrast to the simple, one-click deposit interface on the frontend, Theo is a full-stack, democratized trading network which:
Efficiently executes trades across every major trading venue.
Automatically rebalances collateral to maintain margin requirements.
Guarantees users' custodial rights over their deposits.
Conceptually, Theo's core innovations are a global balance sheet and dedicated settlement network implementing proprietary execution, policy, risk, and custody architecture.
Traditionally, blockchain protocols take an isolated, account-based view of users; for instance, collateral on Ethereum lending markets like Aave cannot be used to open trades on Solana or Hyperliquid. As a result, the cost of capital or pricing of assets often varies greatly across trading venues.
Against a backdrop of new execution environments launching practically every month — with varying speeds, fees, and other characteristics — the landscape of these market inefficiencies is growing exponentially. And that's not to mention centralized trading venues.
While it is possible to arbitrage some inefficiencies by manually bridging back-and-forth, Theo is designed around the belief that maintaining a global balance sheet of assets provides a massive competitive advantage for executing trading strategies. Holding assets on multiple venues opens the door to instantly arbitraging funding and lending rates, taking high-frequency trades, and more with minimal directional exposure.
As Theo scales and its balance sheet grows, the network benefits from an economy of scale: more assets can be held at more trading venues with more size. In theory, this positions Theo to capture inefficiencies too big or small for centralized trading desks.
The Theo balance sheet is made possible by Theo's unit of account, thUSD. Collateral used to mint thUSD is distributed across trading venues when thUSD is staked into trading strategies.
Trustlessly executing trades on behalf of users is a complex problem. Neither the performant, low-latency execution nor global balance sheet required to implement strategies at scale lend themselves to a decentralized environment.
Theo's solution to this is a dedicated settlement network (Theo Network) which orchestrates trades while guaranteeing user's custodial rights over their deposits. To do so, Theo Network brings dedicated modules for optimally executing trades and bridging collateral, ensuring strategies are conducted according to predefined policies, and managing risk parameters.
Theo Network also brings a custom custody stack, ultimately governed by the settlement network, which ensures collateral is held in a secure fashion for each trading venue. For more information about both the network's integral modules and Theo's custody stack, refer to the Architecture docs.
