Legal enforceability

The protection a lender holds is only as good as its enforceability, and enforceability lives partly on-chain and partly in law.

On-chain, the loss waterfall is self-executing to the extent collateral and first-loss capital are on-chain: liquidation and the application of first-loss do not require anyone's cooperation. Beyond that layer, recovery depends on the Master Loan Agreement, a binding contract between the borrower and the lending entity that governs the obligation to repay and provides rights on default, which may include cross-default provisions and claims against the borrowing entity's assets.

The limits are stated plainly because they are real. Legal recovery against a defaulted entity is slower, costlier, and less certain than on-chain liquidation, and it depends on the jurisdiction of the borrower and the governing law of the agreement. An under-collateralized or partially secured facility relies more heavily on this legal layer, and therefore carries more of this uncertainty, than a fully collateralized one.