Backstop and loss handling

Losses beyond normal liquidation assumptions require an explicit waterfall. The final mechanism is not yet defined.

A possible sequence is:

1. Position collateral.
2. Direction-specific reserve or liquidation buffer.
3. Junior or backstop capital.
4. Only then, if unavoidable, lender loss according to the market's disclosed rules.

warning

Loss allocation must be explicit before launch. "Overcollateralized" is not a complete answer to gap risk.