Collateral & Liquidation
Risk & Proof — Step 2 of 4
This section describes the collateral framework and liquidation mechanics applicable to AlphaPing-operated, non-custodial on-chain credit vaults.
It explains how collateral eligibility and constraints are defined, how valuations are sourced, and how liquidation triggers are enforced through protocol-level mechanics.
This material is descriptive and focuses on mechanics rather than outcomes, performance, or guarantees. The scope is limited to behavior defined by mandate constraints and third-party protocol execution and should be read alongside the Risk Framework and Accounting & Loss Treatment sections.
Collateral Principles
AlphaPing credit exposure is backed by collateral defined in advance through explicit mandates.
Collateral is constrained by eligibility rules, parameter limits, and protocol mechanics rather than discretionary judgment.
Collateral design prioritizes enforceability and verifiability: eligibility is explicit, thresholds are predefined, and downside handling follows deterministic execution rules.
AlphaPing does not take custody of collateral and does not override protocol liquidation behavior.
Eligible Collateral & Constraints
Collateral eligibility and constraints are defined per mandate.
Eligibility determines which assets may be used as collateral and under what conditions.
Constraints define boundaries such as maximum leverage, concentration limits, and parameter thresholds.
Where mandates permit allocation across markets, collateral constraints remain enforceable at the mandate level and through protocol configuration.
| Collateral Control | Description | Configurable per Mandate | Enforced How |
|---|---|---|---|
| Eligibility List | Defines which collateral assets are permitted. | Yes | Mandate configuration and protocol parameters |
| Over-Collateralization Only | Requires collateral value to exceed borrowed value under defined thresholds. | No | Protocol LLTV and liquidation rules |
| LLTV Thresholds | Defines maximum loan-to-value thresholds per collateral type. | Yes | Protocol configuration and continuous on-chain enforcement |
| Concentration Limits | Limits exposure to any single collateral asset or category. | Yes | Mandate constraints and allocation enforcement rules |
| Market Eligibility | Defines which markets may be used when collateral is deployed across approved markets. | Yes | Mandate configuration and operation-layer enforcement |
| Prohibited Assets / Conditions | Explicit exclusions (assets, wrappers, or conditions) for collateral use. | Yes | Mandate rules and protocol configuration |
Valuation & Oracle Dependence
Collateral valuation is determined by third-party protocol mechanisms, which may rely on on-chain or external oracle systems and protocol-defined pricing logic.
Valuation inputs can be delayed, incorrect, manipulated, or unavailable due to oracle behavior, network conditions, or protocol configuration.
AlphaPing does not control oracle systems and does not substitute discretionary valuation for protocol-defined pricing.
Where valuation anomalies occur, liquidation and accounting outcomes follow protocol rules and on-chain execution.
Liquidation Triggers
Liquidation triggers are defined in advance through mandate constraints and protocol parameters.
When trigger conditions are met, liquidations are initiated and executed according to protocol mechanics.
AlphaPing does not delay, prevent, or manually override protocol liquidation triggers.
| Trigger Condition | Typical Cause | Trigger Source | What Happens Next |
|---|---|---|---|
| LLTV Threshold Breach | Collateral value decline or debt increase. | Protocol parameters | Protocol-defined liquidation process executes |
| Rapid Price Movement | Volatility causes fast threshold crossing. | Oracle + protocol logic | Liquidations may execute quickly based on on-chain state |
| Liquidity Contraction | Reduced market depth increases execution impact. | Market conditions + protocol mechanics | Liquidation outcomes may worsen due to slippage and depth |
| Allocation Band Breach (If Applicable) | Exposure drifts outside mandate-defined bounds. | Mandate rules | Rule-based rebalancing within approved markets, not discretionary selection |
| Network Execution Delay | Congestion delays confirmations and ordering. | Blockchain conditions | Trigger timing and execution may be affected by confirmation latency |
Liquidation Mechanics
Liquidations are executed through third-party smart contracts and follow predefined protocol rules.
Execution may involve partial or full liquidation depending on protocol design, collateralization state, and available liquidity.
Liquidation outcomes are affected by market depth, transaction ordering, and on-chain execution conditions.
AlphaPing does not provide guarantees regarding execution price, timing, or loss magnitude and does not inject external liquidity to influence liquidation outcomes unless explicitly permitted by mandate and implemented through protocol-defined mechanics.
Downside Scenarios & Outcomes
Downside scenarios are handled through deterministic enforcement rather than discretionary intervention.
Outcomes depend on protocol behavior and market conditions and are reflected on-chain as executed.
| Scenario | Trigger | Mechanism | Outcome |
|---|---|---|---|
| Collateral Drawdown | Collateral value falls below thresholds. | Protocol liquidation rules | Collateral liquidated; losses may be realized depending on execution conditions |
| Depeg / Structural Collateral Event | Collateral deviates materially from expected value. | Oracle/protocol valuation | Liquidations may accelerate; outcomes depend on liquidity and protocol mechanics |
| Fast Market Dislocation | Rapid repricing increases liquidation frequency. | Continuous on-chain enforcement | Liquidations may execute quickly; outcomes reflect market depth and ordering |
| Liquidity Stress | Withdrawal pressure and thin liquidity. | Protocol withdrawal mechanics | Withdrawals may be delayed or partial; no discretionary gating |
| Oracle Anomaly | Incorrect/delayed pricing input. | Oracle system + protocol logic | May trigger premature/incorrect liquidations; outcomes follow protocol execution |
| Network Congestion | High gas / delayed confirmations. | Blockchain conditions | Execution timing and realized outcomes may be impacted by confirmation delays |
What This Section Does Not Do
This section explains collateral and liquidation mechanics but does not eliminate risk or guarantee outcomes.
It does not prevent losses, liquidations, or adverse market outcomes; does not guarantee liquidity, execution timing, or pricing; does not override protocol behavior, oracle systems, or blockchain settlement; and does not provide insurance, compensation, or discretionary loss mitigation.
All outcomes remain dependent on mandate constraints, protocol mechanics, and on-chain execution conditions.