Specifications and Process continued

Technical Specifications continued

Step 4: FUND contract activated and funding period commences

The funding cycle begins with the start of the funding period. A notification is sent out to participants to send their cycle contribution amount in USDC into the FUND contract.

At the end of the funding period, there are 2 possible scenarios.

Scenario 1: Participants make cycle contributions within funding period, remain in good standing

This is the typical scenario. Participants make correct cycle contributions within the funding period and remain in good standing. Participants in good standing can be appointed beneficiaries.

Scenario 2: Participants fail to make cycle contribution, become defaulting participants

For participants who fail to contribute the correct cycle contribution amount during the funding period, they will be considered in default. While in defaulting status, participants cannot be appointed beneficiary.

Defaulting participants will remain in this status until the underlying default is corrected. The participant can exit the defaulting state by making the next cycle's contribution.

When defaulting participants miss cycle contributions, the smart contracts will execute in the following manner. The Fund contract will report to the Collateral Vault contract on the defaulting status of each participant. The Vault contract will then liquidate as follows.

Participant has an over collateralized VAULT

For defaulting participants with an overcollateralized VAULT, an amount of collateral held in the vault (ETH) will be transferred to the collateral balance of the current beneficiary. The beneficiary will then be able to withdraw this amount from their collateral along with the fund. The amount of collateral to be liquidated is determined based on the prevailing price of ETH and equivalent to the cycle contribution amount. The price of ETH is fetched from oracles.

	Current price of ETH	Collateral in VAULT - TCR (ETH)	Collateral released - X (ETH)	Value of Collateral (ETH) at current price
When collateral first sent	$2,000	0.7500		$1,500
Start of cycle 1 funding period	$1,900	0.7500		$1,425
ETH liquidated to make cycle contribution of $100	$1,900		0.0526	$100
End of cycle 1 funding period	$1,900	0.6974		$1,325

• In this example, the price of ETH falls, but the VAULT remains overcollateralized.

• When the VAULT contribution is first made, the price of ETH is $2,000/ETH. The collateral amount is therefore 0.75 ETH = 1.5 x $1,000 (total contribution amount)

• The participant misses the first cycle contribution and triggers a partial VAULT liquidation. By this time, the price of ETH has decreased to $1,900/ETH. This means that to cover the cycle contribution amount of $100, an amount of 0.0526 ETH = $100 / $1,900 must be liquidated.

• Gas fees associated with the sale and transfer of ETH will be the responsibility of the participant..