# 4. Backing, Effective Supply, and BPT

[Back to whitepaper overview](/lsteak-protocol-docs/lsteak-whitepaper-v2.2/overview.md)

To understand how LSteak behaves across different market conditions, it is essential to separate price, backing, and supply accounting. These concepts are deliberately decoupled.

### 4.1 Backing Is Not a Price

Backing refers to the total value of assets held by the LSteak Yield Engine. This includes:

* Yield-generating bonds
* A diversified hedge (BTC, ETH, and XAUT, weighted by market regime)

Backing is measured in economic value, not market sentiment. It cannot be withdrawn, redeemed, or reduced during normal operation.

The market price of LSTEAK is discovered externally via liquidity pools and may trade above or below backing‑derived value. This is intentional.

### 4.2 Effective Supply

Not all LSTEAK tokens are equal for accounting purposes.

Effective Supply represents the portion of LSTEAK that participates in backing calculations. It explicitly excludes:

* Protocol-owned balances that do not represent circulating claims
* any non-redeemable, accounting-only representations (if present)

This prevents double-counting and ensures that backing metrics reflect only economically relevant supply.

LSTEAK minted via LSaaS flows is standard LSTEAK supply.

It counts toward effective supply and BPT.

### 4.3 Backing Per Token (BPT)

Backing Per Token (BPT) is the core internal metric used by the protocol.

$$
\text{BPT} = \frac{\text{Backing}}{\text{Effective Supply}}
$$

BPT represents value density, not a redeemable price.

It answers one question:

How much real economic value is supporting each unit of effective LSTEAK supply?

BPT:

* Increases as backing grows
* Increases as effective supply is reduced
* Is unaffected by short-term market volatility

### 4.4 Why BPT Matters More Than Price

Market price reflects moment-to-moment demand. BPT reflects accumulated economic reality.

By anchoring internal logic to BPT rather than price, LSteak achieves several properties:

* Internal decisions are insulated from speculative swings
* Volatility can be exploited instead of defended against
* The system remains predictable even when markets are not

External arbitrage is permitted — and encouraged — but it always operates against a backing‑anchored reference rather than a discretionary peg.


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