Default Handling

When a debtor fails to pay, the protocol follows a structured recovery process.

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Default Flow

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Timeline

Day	Event	Status
0	Maturity date	Awaiting payment
0-7	Grace period (standard)	Late, not defaulted
7-14	Extended grace (if applicable)	Still late
14+	Default declared	Collection begins
14-90	Active collection	Recovery efforts
90+	Write-off consideration	Partial/full loss

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Grace Period

Before declaring default, the protocol allows time for:

Reason	Grace Period
Payment processing delays	3-5 days
Bank transfer timing	5-7 days
Administrative issues	7-14 days

During grace period:

• Late fees may accrue

• Investor notified of delay

• Debtor contacted for status

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Default Declaration

A default is formally declared when the grace period expires, no payment is received, and there is no credible payment plan.

1

Criteria for declaration

• Grace period expires

• No payment received

• No credible payment plan

2

On-Chain Record

Default declaration creates:

• Permanent on-chain record

• Asset status change to "Default"

• Trigger for collection process

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Collection Process

1

Formal Demand

Action	Timeline
Send formal demand letter	Day 1
Allow response period	7 days
Escalate if no response	Day 8

2

Collection Agency

Action	Timeline
Engage collection agency	Day 8-14
Agency contacts debtor	Ongoing
Negotiate payment plan	As available

3

Legal Action

Action	Timeline
Initiate legal proceedings	Day 30-60
Court filing	As required
Judgment enforcement	Post-judgment

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Recovery Distribution

When funds are recovered:

Priority	Recipient	Description
1	Collection costs	Third-party fees
2	Protocol fee	Standard settlement fee
3	Investors	Remaining funds distributed pro-rata

Partial Recovery

If only partial amount recovered:

Recovery %	Investor Outcome
100%	Full principal + yield
75%	75% of principal returned
50%	50% of principal returned
0%	Total loss

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Insurance (Future)

Credit insurance may cover defaults:

Coverage Type	Description
Trade Credit Insurance	Covers debtor non-payment
Political Risk	Covers country-specific issues
Fraud Coverage	Covers seller fraud (limited)

1

Claim initiation

• Default declared

• Claim filed with insurer

2

Investigation

• Insurer investigates

3

Resolution

• Claim approved/denied

• Payout to investors

Insurance features will be announced when available.

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Investor Notifications

Investors receive updates at each stage:

Event	Notification
Maturity reminder	7 days before
Grace period entry	Immediate
Default declaration	Immediate
Collection updates	Weekly
Recovery distribution	Upon receipt

Notification Channels

• Email (if provided)

• Dashboard alerts

• On-chain events (for monitoring)

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Historical Default Data

Once the platform has operating history:

Metric	Description
Default Rate	% of assets that default
Recovery Rate	% recovered from defaults
Time to Recovery	Average collection period
Loss Rate	Net loss after recovery

Historical data will be published as the platform matures. Past performance does not guarantee future results.