Collateral Terms

Status: v0.1 draft. Not in force. Counsel posture confirmed by Drew 2026-06-05; counsel review continues as a parallel workstream, not a build gate.

Where this sits in the Custody Framework

This document operates under Category B of the Custody Framework Charter — the escrow-only category that governs lending pool capital, loan accounts, collateral escrow, and the Circle Protection Reserve. Member vote does not apply to Category B custody; the rule is constitutional. Accounts are opened in the name of the Members' own co-operative legal form, with a multi-signature mandate held by the Lending Committee.

Category A — regular cycle contributions in single-jurisdiction Circles, which may be Member-to-member or escrow-held by Member vote — is outside this surface. Category C — Circles that cross a jurisdictional boundary — adds the escrow-only rule to all funds in those Circles; this surface inherits Category C when the Circle is cross-border.

1. When collateral is required

For a loan of amount A and unsecured trust U, collateral covers the secured portion = max(0, A − U). Full collateral is required regardless of U when:

• A first L2 loan with no platform repayment history (U_CLP = 0).
• Within a 12-month default cooldown.
• The loan exceeds the pool's unsecured ceiling (excess is always secured).
• Standing is below the pool's unsecured floor.
• The affordability check fails at the unsecured size.
• Cross-jurisdiction CLP above the Standing-floor amount, unless top-tier Standing.

The loan disclosure form shows the exact secured amount, the acceptable security types for that loan, and the required posted value per type (gross of LTV haircut and interest-over-term).

2. Required posted value

requiredSecurityValue = (securedPortion × (1 + interestOverTerm)) / LTV(type)

Required posted value covers the secured portion grossed up for recovery haircut + interest accrued over the loan term. The formula is applied at origination using the disclosed interest rate and term.

3. Acceptable security types

3.1 Cash deposit (escrow) — LTV 0.95

The most efficient type. Same currency as the loan. Held in regulated escrow with the lending entity's escrow provider.

• Posting: borrower transfers the required amount to the escrow provider; receipt is recorded on the platform as a LoanSecurity row with securityType='cash_deposit'.
• Release: on full repayment, the escrow provider releases the deposit back to the borrower's account, less any deductions for interest accrued.
• Liquidation: on default, the escrow provider transfers the deposit to the lender against the outstanding balance.

3.2 Pledged future hand-payout — LTV 0.80

Native to Circlworld. The borrower assigns an upcoming hand-payout from a circle they belong to, of net value at least the required amount divided by 0.80.

• Posting: borrower selects a cycle + payout position from their active circles; the circle's Treasurer is notified; the platform records the pledge on a CircleCycle.pledgedToLoanId field.
• Release: on full repayment, the pledge is released and the hand-payout flows normally.
• Liquidation: at the next scheduled hand-payout after default, the pledged portion is paid to the lender instead of the borrower. Continues until the pledge is satisfied or the term ends.
• Discounting: the 0.80 LTV reflects (a) timing risk (the payout may be months away), (b) circle-default risk (the borrower's circle may itself dissolve before the payout), and (c) the net value of the payout after any circle obligations.

3.3 Guarantor commitment — LTV 1.00 of guarantor's spare unsecured capacity

A high-Standing Member co-signs the loan, joint-and-several with the borrower. The guarantor's own unsecured trust capacity is consumed by the consumed amount; the guarantor cannot use that capacity for their own borrowing until the loan is closed.

• Eligibility: guarantor must (a) have spare U ≥ consumed amount, (b) meet the same KYC level as the borrower for the loan, (c) hold Standing at or above the pool's unsecured floor, (d) not be in default cooldown.
• Posting: guarantor confirms consent via the platform's guarantor consent surface; consent is logged with their signed acknowledgement of the Guarantor Terms.
• Release: on full repayment, the consumed amount is restored to the guarantor's spare U.
• Liquidation (the "call"): on default, the lender calls the guarantor for the consumed amount. The guarantor may settle in full or accept an installment plan. The guarantor's subrogation right is preserved.

A guarantor may not be the borrower's Treasurer in any circle in which the borrower participates. This avoids the platform's governance role doubling as a credit role.

3.4 External asset — case-by-case

Rare for the loan sizes the micro layer supports. Real-property, vehicle, or business-asset pledges are case-by-case under the law of the entity's jurisdiction. The lender will issue the specific terms with the loan disclosure.

External asset pledges are not the core path. If you find yourself being asked to pledge an external asset for an L0 or L1 loan, contact Care Concierge — that's an unusual ask.

4. Posting procedure

1. The loan disclosure form shows the secured amount, the LTV per type, and the required posted value per type.
2. The borrower selects the security type or types they wish to post.
3. The borrower executes the posting (transfer to escrow / cycle pledge / request guarantor consent / external asset paperwork).
4. The platform verifies posting against the required value. The loan does not disburse until verification passes.
5. The loan disbursement clause (Member Borrowing Agreement §2) checks that all required postings are recorded.

Mixed posting (e.g. £500 cash deposit + £500 pledged hand-payout) is permitted. The lender approves the mix.

5. Release procedure

1. On final repayment installment, the lender confirms zero outstanding balance.
2. All LoanSecurity rows for the loan flip from active to released.
3. The release executes:
   • Cash deposit: returned to borrower's account by escrow provider.
   • Pledged hand-payout: the pledge is removed; future payouts flow normally.
   • Guarantor: consumed amount restored to guarantor's spare U.
   • External asset: lien / charge released per jurisdiction's procedure.

The platform displays release confirmation to the borrower and to any guarantor.

6. Partial release on partial early repayment

Where the borrower makes a substantial early repayment (e.g. paying 50% of principal early), the lender may release a proportionate share of the security at the lender's discretion. The default is no partial release — security is held in full until full repayment.

A borrower may request a partial release through the dispute pathway if the secured portion of the remaining balance is materially below the posted security value. The lender's response is binding.

7. Substitution

A borrower may request to substitute one security type for another mid-loan (e.g. swap a pledged hand-payout for a cash deposit). Substitution requires lender consent. The new posting must satisfy the formula in §2 at the moment of substitution. The substitution is recorded on the platform.

8. The platform's role

The platform records security postings, verifies posted values against the formula, surfaces the security state to the borrower and the pool contributors, and runs the release / liquidation step of the waterfall on default — but does not execute the financial movement. Cash deposits move through the escrow provider. Pledged hand-payouts flow through the circle's regulated rails. Guarantor calls are issued by the lender (the circle's / federation's own co-operative form). External asset enforcement is the lender's responsibility (in the same capacity).

Circlworld does not hold the security. Circlworld does not move the security. The escrow provider, the circle's rails, and the lender's enforcement infrastructure hold and move it.

Reminder: v0.1 draft. Escrow rules differ materially across jurisdictions; counsel will confirm the escrow provider and the substitution / release rules per jurisdiction before activation.