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On-Chain Delinquency

The vault becomes delinquent when available cash, after existing reserves, is insufficient to cover matured unfunded redemptions. New deposits and borrower draws are blocked during this condition, including during the grace period. If the shortfall persists beyond the configured grace period, the penalty APR accrues on the active pool’s interest base. It benefits lenders, including lenders whose shares are still queued. The protocol does not deduct its fee from the penalty component. Penalty starts after grace; the grace interval itself is not charged. Delayed observation does not move the start forward. A covering repayment can cure the shortfall and fund matured requests atomically. Temporarily covering a cohort without funding it does not grant a fresh grace period for that same cohort.

Default Is a Separate Determination

A contractual default can arise from events described in the facility’s agreements, such as a payment failure, a Solvency Ratio in the Default state, an information breach, or an insolvency event. It is distinct from the contract’s cash-shortfall test. Legal Framework lists the Events of Default. Once an Event of Default is declared, all drawn principal and accrued interest become due, the facility is paused, and interest accrues at the Default Rate. The platform operator must initiate enforcement within the period set out in the agreements. Enforcement covers the formal notice, the instruction to apply the first-loss buffer by set-off, and, where applicable, termination for the distribution of undrawn funds. The timing of the set-off depends on the type of default. It is immediate on insolvency, follows an operational cure window for a Solvency Ratio default, and follows the uncured delinquency period for a repayment failure.

What Termination Changes

An authorized manager can terminate a vault. This is irreversible.
  • New deposits, borrower draws, redemption requests, and new funding rounds stop.
  • Base interest, applicable penalty, and fees continue through the end of the epoch in which termination occurred, then stop accruing on-chain.
  • Already-funded withdrawal claims remain in their separate reserve and can still be claimed.
  • After the cutoff, all remaining shares—including unfunded queued shares—participate in one proportional recovery pool.
  • Repayments remain possible and increase the money available for recovery.
  • Wallet-to-wallet share transfers are blocked after termination.
Termination does not itself bring assets back from an exchange, sell a buffer asset, or produce enough cash to pay everyone. Under the agreements, the first-loss buffer is applied by set-off on an Event of Default, termination with the pro rata distribution of undrawn funds is the second stage of recovery, and legal enforcement against the borrower is the third. Lenders are notified of these steps through the platform and, where an email address is on file, by email.