Collateral

Every protection contract on BlockFinaX is fully collateralised. When a contract is sold, the most it could ever pay is set aside from underwriters' capital and locked until the contract expires.

What this means for businesses

Your maximum payout exists in the pool from the moment you buy. It does not depend on the underwriters' future behaviour, on new deposits, or on BlockFinaX. If the rate settles at or beyond your limit, the full amount is there.

What this means for underwriters

Each contract you back locks part of your capital, called your reserve, until it expires. You cannot lose more than you have reserved, and you cannot be asked for more money later.

How much is reserved

The reserve is the notional multiplied by the distance between the strike and the limit, divided by today's rate. It equals the most the contract can pay.

For a 10,000 notional, a strike of 1,360, a limit of 1,500 and today's rate of 1,330, the reserve is 10,000 × 140 / 1,330 = 1,052.63 USDC.

A pool can only sell a contract if its underwriters' free capital covers the whole reserve. See Capital reservation.