Cash Advance

What “guaranteed” covers

The floor is denominated in this market’s reserve asset, not in dollars, and it does not protect the market premium above it. Smart-contract, blockchain and reserve-asset risks remain. See Risk before committing capital.

The cash advance lets a holder pledge tokens and draw liquidity up to their total floor value. The draw carries no interest, has no maturity, and gives the protocol no claim beyond the pledged collateral. It is funded from the market reserve, the same capital that backs redemption. The only cost specified is a flat origination fee charged once at the draw.

Definition

A holder pledges tokens as collateral and receives an advance denominated in the market’s reserve asset. If the market is denominated in USDC, the advance is in USDC. If it is denominated in gold, the advance is in gold. The holder is not borrowing a foreign asset against volatile collateral; the advance is drawn in the same unit the floor guarantee is expressed in.

Three properties define the facility.

Zero interest. The balance does not grow. Carrying an advance for a year costs the same as carrying it for a day.

Non-recourse. The protocol’s only claim is the pledged collateral. A holder who never repays forfeits the locked tokens and nothing else. There is no deficiency claim and no personal obligation.

No forced close-out. The outstanding balance can never exceed the floor value of the locked collateral, and the floor cannot fall. Margin calls, liquidation triggers, and default states have no state in which they can fire.

Capacity

Advance capacity equals the floor value of pledged collateral.

capacity = n * f

where n is the number of pledged tokens and f is the current floor price.

Because the floor is monotonically non-decreasing, capacity on resting collateral only grows. It rises when the holder pledges more tokens, and it rises when the floor rises. It never contracts on its own.

Locked collateral

While an advance is outstanding, the protocol locks the minimum collateral needed to cover it.

n_locked = outstanding / f

Pledged tokens above n_locked stay free. The holder can withdraw or redeem them at any time.

Automatic deleveraging

n_locked is inversely proportional to the floor, so a rising floor releases collateral. An increase of x percent in f reduces locked collateral by the same proportion, because the unchanged outstanding balance is now covered by fewer tokens at a higher guaranteed value. The holder takes no action and signs nothing. Tokens that were locked become free.

Take a position of 100 pledged tokens with the floor at 0.90. Capacity is 90. A holder who draws the full 90 has all 100 tokens locked. If the floor later reaches 1.00, the same outstanding 90 needs only 90 tokens to cover it, and 10 tokens unlock. Capacity on the full 100 is now 100, so a further 10 is available to draw.

Why forced close-out cannot occur

Liquidation exists in conventional lending because collateral value can fall below the debt. Both halves of that condition are removed here.

The debt does not grow. Interest accrual is excluded by design, not omitted by accident. An accruing balance would eventually pass the floor value of the collateral, which would reintroduce insolvency and force a liquidation mechanism back into the system. A flat origination fee fixes the cost at the moment of the draw and leaves it fixed.

The collateral value does not fall. The advance is capped at floor value, and the floor is a hard guarantee backed by the reserve identity. It cannot decrease. The condition that would trigger a close-out therefore has no reachable state, and the facility needs no liquidation engine, no health factor, and no price oracle for the collateral.

Default risk is absent for the same reason, which is why the facility can price at zero interest. A conventional lender prices default probability into the rate. Here there is nothing to price.

Source of funds

The advance is paid from the market reserve. No separate lending pool exists and no external lender participates.

This works because the advance is economically a forward sale of the collateral at the floor price with an embedded right to repurchase. A holder taking an advance receives exactly what the reserve would have paid had those tokens been redeemed at the floor. The protocol holds the tokens instead of burning them. Advancing floor value against pledged tokens creates no new liability, since the reserve already owes floor value to every token in circulation. The disbursement is early, not additional.

Repayment

Repayment is voluntary and partial repayment is allowed. Repaying unlocks the corresponding collateral. There is no repayment fee, no interest, and no maturity date, so the concept of a late payment does not apply. A holder repays when they want to sell or redeem the underlying tokens, or pledge them elsewhere.

Fees

The specified cost is a single origination fee, a flat percentage of the amount advanced, charged at the draw. The rate is a governable parameter. No periodic charge, repayment charge, or penalty is specified.

On the name

The facility is specified as a cash advance rather than a loan, and the distinction is substantive. A loan implies a creditor-debtor relationship with recourse, accruing interest, and a default state. None of those exist here. The nearest conventional analogue is a repurchase agreement, in which the holder effectively sells tokens to the protocol at the floor price and retains an option to buy them back. Unlike a standard repo, there is no term, no coupon, and no obligation to repurchase.

Related

• The Assured Value Machine for the reserve identity the facility rests on.
• Floor raising for how f increases, and therefore how capacity increases.