Crunch Depositary Pool
How do we safeguard lenders against defaulting borrowers?
The Crunch Depositary Pool is a trust fund created by the Crunch Network to protect lenders against the risk of borrowers defaulting on their loans.
By creating a pool of crypto-assets held as insurance for borrowers who may default on their loans, lenders can be assured that their investments are protected even if some borrowers fail to repay their loans.
Here's how it works:
- 1.Deposits: When users make deposits in crypto-assets, they do so with varying degrees of risk. To protect lenders, a portion of the network fees for every transaction is held in trust-bearing interest and used to fund the depositary.
- 2.Insurance: The depositary is a pool of crypto-assets held as insurance for any borrowers that may default on repaying their loans. If a borrower defaults, the funds from the Depositary are used to cover the outstanding loan amount.
- 3.Rebalancing: The amount held in the depositary must be rebalanced from time to time depending on the number of loans issued in the system. This ensures that there are always enough funds in the pool to cover any potential defaults.
- 4.Excess Funds: When the total value of the Depositary Pool exceeds the amount required to insure all loans in the system, any excess funds are distributed to network participants.
The Crunch Depositary Pool exists to provide lenders with protection against potential losses due to borrower defaults.
The pool is funded by network fees and must be rebalanced periodically based on loan issuance levels, ensuring that there are always enough funds available to cover potential defaults while also providing excess funds for distribution among network participants when appropriate.