Index Methodology

Liquid RWA HY Index

Criteria for Inclusion

Technical onboarding onto Plume Network
Tokenized Risk Assessment Rating (”TRA”) performed by Cicada Partners

Risk Budget/Constraints

Duration:
1. 20% Minimum Liquid Stablecoins (A)
2. 25% Maximum Liquid Credit with <2 days duration (B)
3. 25% Maximum Liquid Credit with 5-7 days duration (C)
4. 30% Maximum Liquid Credit with 7-60 days duration (D)
Quality:
1. Minimum TRA Rating of 3.3 or higher (B3 Equivalent)
Sector 2:
1. 30% Sector Concentration Limit
Issuer:
1. 30% Issuer Concentration Limit
2. 15% Direct Lending Issuer Concentration Limit

Factor-Based Portfolio Weighting

Risk-Adjusted Yield

(a) Calculate Asset-Based Risk-Adjusted Yield Factor "RAY"

where:
	RAY𝑖 = Yield𝑖 * Risk𝑖  = risk-adjusted yield for asset

(b) Calculate New Weight of Assets in Portfolio				
where:
	𝑤𝑖new = new weight of asset 𝑖 in the portfolio
	Yieldi = expected return or yield of asset 𝑖
	Riski  = (1 - expected loss); measure of risk for asset,
			which is the expected loss implied by TRA Rating
	N = total number of assets in the portfolio
	
	**winew = RAYi / Sum(RAYi to j)**

	
	**Explanation of the above Formula:**
		(1) Risk-Adjusted Yield (RAY): Each asset's yield is adjusted
				by its associated risk to standardize comparison across assets.
		(2) Normalization: The weights 𝑤𝑖new are derived by dividing each
				asset's RAY by the total RAY of all assets in the portfolio,
				ensuring that the portfolio weights sum to 1.
		(3) Rebalancing Logic: Assets with higher RAY values will have
				their weights increased in the portfolio, while those with
				lower RAYs will have their weights reduced.

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