> 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**.

## Manager collateral (skin-in-the-game)

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.

* If the loan is **repaid**, the collateral is released back to the manager.
* If the loan **defaults**, the collateral is **slashed** to compensate investors — it is first-loss capital.

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

## 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 dedicated on-chain **escrow** for the life of the loan:

1. **Pledge** — before disbursement, the borrower locks the asset in escrow, naming the vault as its controller.
2. **Verify** — at disbursement, the vault checks the pledge (asset, amount, and recovery party) against the loan's terms 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.

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.

{% 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](https://github.com/orunpay/trilobite-docs/blob/development/technical-docs/collateral-escrow-contract.md) for the mechanics).
{% endhint %}