Capital & Leverage
How syndicate capital, risk points, and leverage controls work
TL;DR: Syndicates back pools with single-sided capital. Exposure is governed by a 20-point risk budget, mutex exclusivity, and a concentration-based leverage ladder. At launch, the configured max leverage is 3x.
Single-Sided Liquidity
Underwriters participate by depositing a single asset (e.g., USDC) into the CapitalPool. There's no LP pairing, no governance token requirement, and no impermanent loss.
- Asset choice - Deposit USDC (or wstETH on the LST instance)
- External yield - Idle capital (not backing active claims) earns DeFi yield via whitelisted adapters (Aave, Compound)
- Full withdrawal - Get back your principal + earned premiums + yield, minus any claim losses
Capital Pledges
When you allocate capital to a pool, you create a pledge - a commitment to back policies sold from that pool.
- Total pledges can exceed your deposit when the syndicate remains inside the risk budget and leverage ladder
- There is no live fixed per-pool concentration cap in the current underwriting model
- Your capital can be pledged across multiple pools simultaneously, subject to mutex and pool-specific caps
- Pledges can be adjusted as pools change or as you rebalance
Risk Points
Each pool has a risk point cost based on its rating. Lower-rated pools consume more of the syndicate's point budget per dollar of pledged capital.
Risk Point Costs
When a syndicate allocates to a pool, points used scale with both the pool's rating and the size of the pledge relative to syndicate principal.
Larger allocations and weaker ratings both push the total higher. Across all pledges, the sum must stay at or below 20.
Lower-rated pools spend budget faster
Every allocation draws from the same 20-point underwriting budget. Safer pools leave more room to diversify; weaker ratings consume capacity more aggressively.
Points used scale linearly with both the rating cost and the share of syndicate principal committed to a pool. A book can stay diversified only if it preserves room under the cap.
Across all active pledges, total point usage must remain at or below this threshold.
Most flexible for spreading capital across multiple pools.
Budget burns faster and leverage headroom narrows quickly.
Concentration can still reduce leverage before the point budget is full.
Leverage Ladder
Risk points are only one side of the limit. The other side is the largest single-pool share in the syndicate. As concentration rises, the protocol reduces effective leverage.
At launch, governance intends to configure the syndicate max leverage at 3x, and the live leverage ceiling is the lower of:
- the configured max leverage ratio
- the concentration ladder derived from the syndicate's largest pledge
Concentration Bands
| Largest Single-Pool Share of Principal | Effective Max Leverage |
|---|---|
| 0% - 15% | 3.0x |
| 15% - 30% | scales from 3.0x down to 2.5x |
| 30% - 50% | scales from 2.5x down to 2.0x |
| 50% - 70% | scales from 2.0x down to 1.5x |
| 70% - 100% | scales from 1.5x down to 1.0x |
That means the protocol no longer uses a fixed per-pool cap or override model. Concentration is handled directly by the leverage ladder instead.
Worked Example
You deposit 100,000 USDC and allocate:
| Allocation | Pool Rating | Point Cost | Points Used |
|---|---|---|---|
| $40K → Aave USDC | AAA | 1 × (40/100) = 0.4 | 0.4 |
| $35K → Compound cDAI | AA | 2 × (35/100) = 0.7 | 0.7 |
| $25K → Vault Protocol X | A | 3 × (25/100) = 0.75 | 0.75 |
| $20K → Yield Farm Y | BBB | 4 × (20/100) = 0.8 | 0.8 |
| $120K total pledge | 2.65 / 20 used |
This book is at 1.2x leverage, uses 2.65 / 20 points, and its largest pool is 40% of principal. At that concentration, the leverage ladder still permits more total pledge than 1.2x, so the syndicate is comfortably inside both constraints.
Try It Yourself
Risk Points & Leverage Calculator
Leverage means concentration still matters. Low point usage does not guarantee spare capacity if one pool grows too large. The concentration ladder can become the binding limit before the point budget is exhausted.
Mutex Groups
Pools that cover correlated risks are grouped into mutex (mutual exclusion) groups. A syndicate cannot allocate to more than one pool in the same mutex group at the same time.
This is stricter than the legacy docs model. Correlated pools do not get a blended surcharge; the second conflicting allocation is rejected outright.
Capital Adequacy Ratio
Syndicates must maintain a minimum 50% capital adequacy ratio to write new business. This means the syndicate's principal must be at least 50% of its total pledged exposure.
If losses erode a syndicate's principal below this threshold, the protocol blocks new intent reservations (quoting) until the ratio recovers — either through new deposits or pledge reductions.
Solvency gating. This mirrors Lloyd's Solvency Capital Requirement (SCR). Syndicates below the threshold can still manage existing policies and process claims, but cannot take on new risk until recapitalized.
Premium Distribution
When policyholders pay premiums, the gross premium is split as follows:
- Referral reward is 5% when a valid referral code is used, otherwise this slice stays with the underwriter
- Protocol fee is 10%
- Backstop premium is 20%
- Underwriter premium receives the remainder: 65% with a referral, or 70% without one
So the live underwriting economics are a fixed split of gross premium, with only the referral portion being conditional on whether a valid referral code was attached.