> For the complete documentation index, see [llms.txt](https://docs.trilobyte.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.trilobyte.finance/overview/collateral-and-rwa.md).

# Collateral & Real-World Assets

Trilobyte loans can be backed by two complementary forms of collateral. Both protect investors — and together they let the protocol serve a wide range of credit, from pure cash-flow lending to asset-backed lending against **tokenized real-world assets**. Collateral is independent of the [tranche structure](/overview/tranches-and-the-waterfall.md): whether a borrower pledges an asset changes how thick the junior cushion needs to be, not whether tranching exists.

## Manager collateral (skin-in-the-game, junior anchor)

Every loan is backed by the **Pool Manager's own staked capital**. When a manager originates a loan, a portion of their staked collateral (a percentage of the principal, set by the protocol's collateral ratio) is **locked** for the life of the loan — and that locked amount is credited toward the vault's **junior tranche** target, alongside any junior investors.

* If the loan is **repaid**, the collateral is released back to the manager.
* If the loan **defaults**, the collateral is **slashed** into the vault's recovery pool, behind any borrower pledge but ahead of the manager's own residual claim — see [Default & Risk Management](/protocol-mechanics/default-and-risk-management.md).

This aligns the underwriter's incentives directly with investors': the manager loses their own money *before* senior — and before most of junior — does. *(See* [*For Pool Managers*](/user-guides/for-pool-managers.md)*.)*

Manager collateral, and any borrower pledge, must use an asset on Globals' **collateral asset whitelist** — a separate list from the whitelist of assets that can be lent (§14.2 of the tranche spec). Version 1 policy assumes stable or 1:1-tokenized collateral; there is no price oracle or LTV monitoring yet.

## Borrower collateral (real-world assets)

A loan can *additionally* require the **borrower to pledge an asset** as collateral — including a **tokenized real-world asset**. The pledge is held in a shared, dedicated on-chain **escrow** for the life of the loan:

1. **Pledge** — before disbursement, the borrower locks the asset in the escrow (`lock`), naming the vault as its controller. The escrow verifies the transfer actually delivered the full pledged amount before recording it — a fee-on-transfer or otherwise short-delivering token is rejected rather than silently under-recorded.
2. **Verify** — at disbursement, the vault checks the pledge (controller, asset, borrower, and amount) against the loan's terms, and requires the pledge to meet a governed minimum ratio of principal (`min_borrower_coll_ratio_bps`, default 100%) before releasing any funds.
3. **Release or seize** — when the loan is fully repaid, the asset is **released** back to the borrower; if the loan defaults, it is **seized** and transferred to the designated recovery party — first in the recovery order, ahead of manager collateral.

Each pledge is tracked purely by its own id, so one borrower's pledge is never affected by another pledge on the same asset — see the [Collateral Escrow Contract](/technical-documentation/collateral-escrow-contract.md) for why this matters and how the mechanics work.

This is what lets Trilobyte extend beyond cash-flow lending into **asset-backed credit**: any asset that can be represented as an on-chain token — invoices, receivables, or tokenized real-world assets — can serve as collateral, with the protocol enforcing custody and recovery automatically.

## Collateral and the leverage ratio

Whether a loan is collateralized changes the **leverage cap** Governance allows: an uncollateralized vault is capped at a lower senior:junior multiple than a collateralized one, because the borrower pledge gives senior (and junior) an extra layer of protection ahead of the tranche waterfall. Underwriting sets the vault's `leverage_ratio` accordingly — see [How Underwriting Works](/overview/how-underwriting-works.md).

{% hint style="info" %}
A loan can use **manager collateral alone** (cash-flow underwriting), or **manager collateral plus a borrower's pledged asset** (asset-backed). The borrower-collateral parameters — the escrow contract, collateral token, minimum amount, and recovery party — are set per vault at creation. The on-chain custody is handled by a dedicated escrow contract (see the [Collateral Escrow Contract](/technical-documentation/collateral-escrow-contract.md) for the mechanics).
{% endhint %}

*As of September 2026.*