Default & Risk Management

Trilobyte has multiple layers of protection to manage risk and protect investors when borrowers fail to repay.

Risk Layers

Layer 1: Late Fees          → Financial penalty for overdue payments
Layer 2: Grace Period        → Time buffer before default
Layer 3: Manager Collateral  → Skin in the game — slashed on default
Layer 4: Delinquency Tracking → Blocks risky managers from new vaults
Layer 5: Renegotiation       → Restructure terms to avoid default
Layer 6: Credit Limits       → Cap manager exposure

Late Fees

When a payment is overdue (now > next_due), the Pool Manager can apply a late fee:

• Rate: 18% per annum, calculated monthly

• Effect: Increments missed payment counter, advances next due date

• Purpose: Financial penalty that signals vault distress

Grace Period

Every vault has a configurable grace period (default: 30 days). This is the window between a missed payment due date and when default can be triggered.

• During the grace period, the borrower can still make payments to prevent default

• The manager can apply late fees and attempt to resolve the situation

• After the grace period expires, anyone can call check_default() to trigger default

Default Trigger

Default is triggered by calling check_default() when:

1. The vault is in the Active phase

2. The current time exceeds next_due + grace_period

Default is permissionless — anyone can trigger it. This prevents managers from colluding with borrowers to avoid consequences.

Consequences of Default

When default is triggered:

Action	Detail
Phase transition	Vault moves to Defaulted
Collateral slashed	Manager's locked collateral is seized for investor recovery
Delinquency flag	Manager is marked delinquent in Globals
Outstanding decremented	Manager's outstanding principal is reduced in Globals
Events emitted	VaultDefaulted, ManagerMarkedDelinquent

Manager Collateral

Pool Managers must deposit collateral before creating vaults. This is their "skin in the game":

• Deposit: deposit_collateral(manager, token, amount) — stake tokens in Globals

• Lock: When a vault is created via the Factory, collateral is locked proportional to the principal

• Release: On FullyRepaid, the locked collateral is released

• Slash: On Defaulted, the locked collateral is slashed and transferred for investor recovery

The collateral ratio is a global setting that determines what percentage of the principal must be covered by collateral.

Delinquency Tracking

Managers with defaulted vaults are flagged as delinquent:

• The Factory checks is_delinquent(manager) before allowing vault creation

• Delinquent managers are blocked from creating new vaults

• Only an Operations Admin can clear delinquency via clear_delinquency(caller, manager) after review

• A delinquency_count tracks the total number of defaults per manager

Credit Limits

Each Pool Manager has a maximum credit limit (max_credit) set by the Operations Admin:

• The Factory checks outstanding_principal + new_principal ≤ max_credit before deployment

• Prevents a single manager from over-leveraging the protocol

• Can be adjusted via set_manager_credit_limit(caller, manager, max_credit)

Renegotiation as Recovery

Even after default, a vault can be restructured:

• The manager can propose renegotiation from the Defaulted phase

• If approved, the vault returns to Active with new terms and a recalculated EMI

• This provides a path to recovery when the borrower's situation can be salvaged

Trilobyte's risk model is inspired by traditional structured finance, where first-loss capital (manager collateral), credit limits, and workout procedures (renegotiation) work together to protect senior investors.