> For the complete documentation index, see [llms.txt](https://quantixfinance.gitbook.io/quantixfinance-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://quantixfinance.gitbook.io/quantixfinance-docs/capital-formation-and-products/first-loss-or-subordinated-capital.md).

# First-Loss or Subordinated Capital

First-loss capital is the junior tranche of a pool. Lender capital is senior; first-loss capital is subordinated to it and takes losses first. This is the structural reason a Quantix lender is better protected than a lender into an undifferentiated pool: a defined cushion stands between them and the first dollar of loss, not a hope that losses simply won't happen.

The delegate is the usual provider of first-loss capital, which aligns the underwriter's incentives with the lenders': a delegate who underwrites poorly loses their own capital before anyone else does. From launch, a pool may also admit third-party subordinated capital — investors who deliberately take the junior position in exchange for a higher share of return, compensated for absorbing loss ahead of senior lenders. As with cost of capital on senior positions, the junior return is not fixed protocol-wide; it is set by the delegate per pool, reflecting that pool's specific risk and the premium required to attract capital willing to sit behind lenders in the loss order.

Whoever provides it, the first-loss balance and the per-default liquidation limit are disclosed on the pool, and the size of the first-loss layer relative to senior capital is the number that actually quantifies how much protection lenders hold in that pool — not a general claim about first-loss capital existing, but the specific ratio a lender can check before committing.