The conserved balance sheet

The identity U + A = B + L + E holds at every step of settlement. Two asset books stand against three ranked claims, and no operation in the model can create value on one side without a matching entry on the other.

The two books are not two strategies. They are two valuation disciplines, and the difference between them is the difference between what the system can measure and what somebody has to assert.

The Reserve

The Reserve holds assets that carry no credit or price risk with respect to the unit of account. For kUSD that means US government debt, with USDC as the reference reserve asset.

Its carrying value follows from instrument terms and the passage of time rather than from recurring market opinion. Terms are recorded when an asset is admitted, and value accrues deterministically from them. The reference design supports par, discount and coupon instruments.

That is the point of holding them separately. A Reserve measured off its own contractual terms does not need a mark, so nobody has to be trusted to supply one.

The risky book

The risky book is held separately and behaves differently. Quantities are measured from custody. Values are asserted, and only where an asset’s value genuinely requires valuation.

The distinction is deliberate and it is the whole trust surface of the model. How much of something the balance sheet holds is a fact the system reads for itself. What that holding is worth, where worth is not mechanical, is an assertion made by a named party through a defined process.

Custody stays with the model

Custody is not outsourced. Both books are held by the model itself, so asset quantities are read from holdings the system controls rather than reported to it from outside. There is no third-party custodian standing between the balance sheet and the assets that support it.

An appointed party can direct allocation within its mandate. The arrangement is closer to a managed account than to a transfer: the manager trades, and the assets never leave the model’s custody. Appointment confers trading discretion. It does not confer possession, and it does not confer the ability to write accounting values.

So the governance surface is explicit rather than blended into one opaque asset-management function. Reserve policy, risky-asset allowlists, mandate scope and valuation responsibility are four separate assignments, and a party holding one of them does not thereby hold the others.

Why conservation is load-bearing

An identity that holds at every step is what makes the ranking beneath it meaningful. If value could appear on the claims side without a matching entry on the asset side, the order in which claims are satisfied would be a statement of intent rather than a constraint.

Because the identity holds, Equity is not a balance somebody maintains. It is the residual the identity forces: the two asset books less the claims ranking above it. It is never stored and never minted. It is read.

That is also why a holder who did nothing cannot read less value after somebody else’s deposit than before it. The property is asserted by test rather than by policy.