How a Loan Works

A Trilobyte loan follows a structured lifecycle from creation to settlement, funded across two tranches and repaid through a strict payment waterfall. Here's how a typical loan flows through the protocol. For the tranche mechanics themselves, see Tranches and the Waterfall.

Step-by-Step

1. Vault Creation

A Pool Manager evaluates a business's creditworthiness and negotiates loan terms off-chain. Once agreed, the manager creates a vault via the Factory contract with the following parameters:

• Principal — The loan amount (e.g. 100,000 USDC)

• Interest rate — Annual rate in basis points (e.g. 1500 = 15%)

• Loan term — Duration in months (e.g. 12)

• Leverage ratio — How large senior capital may be as a multiple of junior (e.g. 400 = 4.00x), which derives junior_target and senior_target

• Reporting interval — Optional manager reporting cadence covenant (0 = none)

• Funding deadline — Optional deadline for full funding

• Approval deadline — Optional deadline for manager approval after funding

• Grace period — Window before default can be triggered after a missed payment

• Permissioned — Whether only allowlisted investors can participate

• Related party — A manager-declared disclosure flag for deals policy considers related, even where addresses don't literally match

• Collateral fields — Optional borrower real-world-asset pledge parameters (escrow, token, recovery party, minimum)

The Factory validates all parameters against global settings — including the leverage cap for the vault's collateral type and borrower/manager exposure caps against total outstanding principal — checks the manager's collateral and credit limit, rejects borrower == manager, and deploys a new Vault smart contract.

2. Fundraising — junior first, then senior

The vault enters the RaisingFunds phase. Junior investors deposit first, alongside the manager's own Globals-locked collateral, which counts as a credit toward the junior target. Once junior capital reaches its target, the manager calls lock_junior, which opens the vault to senior deposits up to the senior target. All deposits mint SEP-41 debt tokens at a 1:1 ratio (net of the protocol fee); an investor can hold a position in both tranches.

The vault automatically transitions to AwaitingApproval once both tranches are fully funded.

If a funding deadline is set and the vault fails to raise the full principal by that date, anyone can call check_funding_expiry(). The vault moves to Cancelled, and each investor then pulls their own refund with claim_refund.

3. Approval & Disbursement

The Pool Manager reviews the funded vault and calls approve_and_disburse. This:

• Verifies any required borrower collateral pledge, if the vault is collateral-backed

• Disburses the funded amount to the borrower

• Calculates the shared installment schedule

• Sets the first payment due date

• Transitions the vault to Active

If an approval deadline is set and the manager fails to approve by that date, anyone can call check_approval_expiry(). The vault moves to Cancelled, and each investor pulls their own refund.

4. Repayments — the six-bucket waterfall

The Borrower makes periodic repayments. Each payment flows through a strict order: reserve fee → senior interest → senior principal → junior interest → junior principal → residual (borrower cash pool). A bucket that isn't fully paid carries forward as arrears, ahead of the next period's dues. See Tranches and the Waterfall for the worked example.

The loan completes when both tranches' outstanding principal reach zero — not on a fixed payment count.

5. Yield Distribution

Investors can call claim_yield at any time during the Active or FullyRepaid phases to claim their pro-rata share of their own tranche's accumulated interest and principal pools.

6. Settlement

When both tranches are fully repaid, the vault transitions to FullyRepaid and the manager's collateral is released. Once every investor has claimed their yield and the borrower has withdrawn the remaining cash pool, anyone can call finalize(), moving the vault to the terminal Finalized state.

If the loan instead defaults, recoveries are distributed senior-first — see Default & Risk Management.

Visual Overview

As of September 2026 — see Vault Lifecycle for the full phase reference, including the new terminal Cancelled phase.