The borrowers do not pay
Normal credit loss. The originator’s 15% covers a great deal of this — at the
assumed 4% loss rate, a wide margin. See first loss.
The originator fails or diverts cash
This is the real risk, and it is what destroyed Goldfinch. Our protections against
it are on the Risk pages, and the case study itself is
here.
Early pools will have one originator. If that company fails or misreports,
protections help but do not make investors whole.
A pool loses more than expected
Our loss estimate has never been measured against real data. It is a placeholder
of 4%, and it will be replaced by data from the shadow pool or by the price a real
credit investor demands for pALPHA. See Disclosures.
Legal recovery is slow
Enforcing claims across borders takes years, and recovery is rarely complete.
Recovery depends on courts in the originator’s home country.
Two more you should weigh
No on-chain junior tranche has yet absorbed a real credit loss as designed.
Across every protocol we reviewed, first-loss capital has either been bypassed,
covered off-chain, or never tested. Ours is untested too.
Smart contracts can have bugs. An audit reduces this risk. It does not remove
it — and PRISM has not been audited yet. See
security.
