# Define who absorbs a loss, and from which resources.

Canonical page: https://finanzer.ai/learn/risk-capital

> A first-loss arrangement allocates specified losses to one participant before another. Its practical value depends on the contract and the resources available to perform it.

A first-loss arrangement allocates specified losses to one participant before another. Its practical value depends on the contract and the resources available to perform it.

## Define the boundary of protection.

Identify covered assets, eligible events, exclusions, limits and payment timing. The allocation of losses needs to be explicit.

## A promised resource is not the same as available money.

Valuation, custody, liquidity and conversion can affect whether a protection arrangement can pay a claim when needed.

## Follow both losses and recoveries.

The agreement defines the order of payments and the treatment of later recoveries. FZR’s proposed risk mandates need those mechanics in addition to token participation.

## Risk capital questions

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