> ## Documentation Index
> Fetch the complete documentation index at: https://docs.drakewell.fi/llms.txt
> Use this file to discover all available pages before exploring further.

# How SPYdw works

> How SPYdw works step by step: deposits by epoch, the collateral behind it, the option ladder that forms the hedge, and redemptions and early exits.

SPYdw is a hedged SPY portfolio. This page follows a deposit from the next epoch through to redemption.

> **Yield pays for the hedge.** The underlying collateral of SPYdw generates yield. That yield buys the S\&P 500 options, and the collateral stays in place as the floor.

## Step by step

**1. Deposit**

Deposit USDC. Deposits are processed at the next epoch. Epochs run up to 7 days.

**2. Collateral**

Your deposit becomes part of the collateral backing SPYdw, across its SPY exposure, its yield, and its hedge.

**3. The hedge**

The collateral's yield buys S\&P 500 call options on a regular ladder, held through TradFi prime brokers, to manage SPYdw's exposure to SPY.

**4. One token**

A single SPYdw token represents the whole portfolio.

**5. Redeem**

Redemptions are processed at the next epoch. Redeeming before the end of an epoch incurs an early-exit fee.

*Hedged, not guaranteed. Its value can fall, including below the amount deposited. The floor is the value of the collateral, not a guaranteed minimum. See [Risks](https://docs.drakewell.fi/spydw/risks.md).*

## The floor

The floor is the value of the collateral that stays in place while the options run.

## The option ladder

Options bought on a regular schedule with staggered 12-month expiries. Cadence goes from quarterly to monthly.

## Epochs and early exits

An epoch is the window in which deposits and redemptions are processed, up to 7 days. The early-exit fee is a fee on redemptions made before the end of an epoch.


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