Risk capital
Define who absorbs a loss, and from which resources.
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.
Risk boundaries
Define the boundary of protection.
Identify covered assets, eligible events, exclusions, limits and payment timing. The allocation of losses needs to be explicit.
Liquidity
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.
Loss allocation
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.