Default in a Turn Group

1. Default in a Turn Group What happens when a participant Defaults on their monthly contribution. 50 USDC per month contribution, money pot is 150 USDC + 50 USDC abatement = 200 USDC. Minimum ETH collateral deposit for beneficiary 1 is 1.5X, reducing algorithmically in subsequent periods.

In this case let us assume that all participants were successful in signing up for the appropriate turn group and they all lodged their contributions as per our example above. Daniel is chosen as the 1st beneficiary of the money pot and as such when it is time to collect the money pot Daniel receives 150 USDC + 50 USDC abatement since it is his turn to collect the pot. Cycle 1/month 1 comes to an end and the ETH collateral has earned 1% for that month and is now worth:

Collateral Pool = 0.54 ETH

Month 1 YG = 1%

Member	Initial collateral amount	Yield on collateral (Month 1)	Total collateral amount after Month 1
Daniel	0.15 ETH	0.0015ETH	0.1515 ETH
Fatima	0.14 ETH	0.0014ETH	0.1414 ETH
Salat	0.13 ETH	0.0013ETH	0.1313 ETH
Rudy	0.12 ETH	0.0012ETH	0.1212ETH
TOTAL	0.54 ETH	0.0054ETH	0.5454 ETH

At the beginning of cycle 2/month 2 the time comes for Daniel, Salta and Rudy to contribute to the money pot with Fatima as the beneficiary. For reasons known to him, Daniel defaults on his 50 USDC contribution. This event triggers the smart contract to liquidate a portion of Daniel’s collateral to cover his defaulted payment. As a result, the following happens:

Daniel’s collateral security is liquidated in the amount of his defaulted payment. The yield previously generated from the liquidated collateral is then made available for Daniel to withdraw.

Amount of payment defaulted (1 month)	Amount of collateral liquidated to cover defaulted payment (1 ETH = 2,000 USDC)	Amount of yield available for Daniel to withdraw (yield = 1% monthly)
50 USDC	50/2000 = 0.025 ETH (sent to beneficiary Fatima)	0.025 ETH * 1% = 0.00025 ETH

Once the appropriate liquidations are complete, they are distributed as follows:

• 0.025 ETH goes to Fatima. This would have otherwise been Daniel’s 50 USDC contribution to the turn group.

• 0.00025 ETH is returned to Daniel. The yield generated is always the possession of the owner of the original collateral pledge.

The above event has an impact on the collateral security pool plus yield of the collective turn group as well. The most immediate impact is that the pool is reduced by 0.025 ETH and 0.00025ETH yield.

The new collateralised security yield generation pool will look as follows after the above event*:

Member	Initial security deposit	Yield on security deposit (Month 2)
Daniel	0.15 - 0.025 = 0.125 ETH	0.00125 ETH
Fatima	0.140 ETH	0.00140 ETH
Salat	0.130 ETH	0.00130 ETH
Rudy	0.120 ETH	0.00120 ETH
TOTAL	0.515 ETH	0.00515 ETH

As a result of the default and liquidation of his collateral Daniel’s possible share of any future yield will be proportionally reduced. The new owner proportions of the initial collateral pool is now as follows^:

New collateral security ownership proportions

Member	Opening collateral Balance ETH		Change in collateral		Collateral Closing Balance		Total Remaining Collateral Pool			Current proportional share of YG	Previous proportional share of YG
Daniel	0.15	-	0.025	=	0.125	/	0.515	*100	=	24.27%	27.78%
Fatima	0.14			=	0.14	/	0.515	*100	=	27.19%	25.93%
Salta	0.13			=	0.13	/	0.515	*100	=	25.24%	24.07%
Rudy	0.12			=	0.12	/	0.515	*100	=	23.30%	22.22%
Total	0.540	-	0.025	=	0.515					100%	100%

Daniel’s default has had the following impacts on the turn groups circumstances:

• Daniel’s proportional value of the overall collateral ETH pool reduces.

• Daniel’s proportional claim of yield generated at the end of the turn term reduces.

• The overall value of the Collateral security yield pool reduces by the amount of ETH liquidated from Daniel’s collateral.

Let’s assume that this turn group runs its course after this event and Daniel has rectified his reason for defaulting. At the end of the term of the turn group the collateral security pool remained at 0.515 ETH and the yield generated over the 3 cycles that remained in the turn group was 3% on 0.515 ETH.

Member	Collateral Deposit Remaining ETH	YG Month 2 (1%) ETH	YG Month 3 (1%) ETH	YG Month 4 (1%) ETH	Total yield generated over cycle 2,3,4
Daniel		0.00125	0.00125	0.00125	0.00375
Fatima	0.140	0.00140	0.00140	0.00140	0.00420
Salta	0.130	0.00130	0.00130	0.00130	0.00390
Rudy	0.120	0.00120	0.00120	0.00120	0.00360
Total	0.515	0.00515	0.00515	0.00515	0.01545

Calculation of yield generated by the Group in cycle 1

Daniel is also due part of the yield generated during cycle 1. Since he had earned a yield on the 0.125 ETH left of his collateral security inside the YG protocol smart contract after he defaulted and 0.025 of his ETH collateral was liquidated with the corresponding yield over that period of 0.0025 ETH. After this turn group term ends and the original collateral that the participants lodged when joining the turn group, less any default redress and associated yield, must be returned to each of these participants. *From the above calculation after Daniel’s default, we had the following snapshot:

Members	Collateral security deposited at the beginning of term	LESS: Liquidated collateral security due to default	New collateral security holdings
Daniel	0.15	0.025	0.125
Fatima	0.14		0.140
Salta	0.13		0.130
Rudy	0.12		0.120
Total	0.540		0.515

Group yield generated in Cycle 1		Daniel’s withdrawn yield				New yield generated end of cycle 1
(0.54*1%)	-	(0.025*1%)	=	0.0054-0.00025	=	0.00515

From this snapshot and assuming that the monthly yield generated from the above, we will have the following scenario at the end of the turn group term:

YG Cycle 1		YG cycle 2		YG cycle 3		YG cycle 4		YG at the end of the term
0.00515	+	0.00515	+	0.00515	+	0.00515	=	0.0206

The above combined YG will need to be allocated according to the new proportional ownership of the collateralised ETH pledged^. The final allocation in this case will be as follows:

Members			Total YG over term		Share of total ETH generated
Daniel	24.27%	*	0.0206	=	0.0050
Fatima	27.19%	*	0.0206	=	0.0056
Salta	25.24%	*	0.0206	=	0.0052
Rudy	23.30%	*	0.0206	=	0.0048
Total	100.00%				0.0206

Total ETH returned to each participant will be:

	Collateral security holdings		YG over turn group term		Total ETH returned to member
Daniel	0.125	+	0.0050	=	0.1300
Fatima	0.140	+	0.0056	=	0.1456
Salta	0.130	+	0.0052	=	0.1352
Rudy	0.120	+	0.0048	=	0.1248

From the above calculations and the calculations in ‘Normal Turn Group’ example together with the assumptions made, it is evident that Daniel’s default has only really impacted his position and his yield negatively whereas the rest of the participants in the turn group have not been prejudiced. The rules associated with the Takaturn YG module ensure that each participant remains responsible for their own actions.