Controlled Credit

Cusp lends against eligible live positions, but on terms written to the collateral's behavior rather than to a single floating rate.

Epochs and rollover

Credit is written in short terms. At each rollover:

• The risk engine reprices the collateral from current market state.
• The loan continues on fresh terms, or unwinds if the position no longer qualifies.

Pricing tracks the position as it moves, instead of lagging behind it.

Health factor

A loan's health compares stressed collateral coverage to debt:

$$\mathrm{HF} = \frac{\mathrm{LT} \cdot V_{\text{liq}}}{D}$$

Liquidation becomes possible when $\mathrm{HF} < 1$. This is the same coverage measure serious lending protocols publish; only the inputs are specific to event collateral.

Capacity decay and the gate

Borrowing capacity is not constant over a position's life. It is full far from resolution and falls as resolution approaches:

$$\lambda(\mathrm{TTR}) = \lambda_{\text{base}} \cdot \min\!\left(1,\ \frac{\mathrm{TTR}}{T_{\text{safe}}}\right)$$

• Far from resolution: full capacity.
• Inside the safety horizon: capacity declines toward zero.
• Near resolution: the origination gate stops new credit entirely.

No position is freshly financed through the window where it can gap to zero. Hard exposure caps bound total borrowing per market on top of this.

Why state-contingent

A single floating rate assumes collateral whose risk changes slowly. Event positions do not: their risk concentrates sharply into resolution. Repricing per state, per epoch, and removing capacity before the event is what keeps the credit solvent. The parameter values behind the decay and the gate are in the Cusp whitepaper.