Anzen Finance
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Coverage Ratio
The Anzen protocol will publish a dynamic Coverage Ratio such that no single Covered Default on any Approved Eligible Transaction can deplete Anzen's treasury and staked liquidity pools.
The Coverage Ratio is equal to:

The ratio of Anzen's treasury and discounted staked liquidity pools (Anzen TVL) to the principal value of Approved Eligible Transactions may equal more than or less than 100% depending on the aggregate coverage amount of Approved Eligible Transactions.
For purposes of calculating the Coverage Ratio, Approved Eligible Transactions will have varying coverage limits as specified in the Reserve Agreement, just as different types of protocol liquidity will have different weights.
For example, borrowers and investors of Eligible Transactions supported by higher quality distinct asset pools will likely not seek 100% coverage given the commensurately higher Reserve Payments required for this level of coverage. Correspondingly, deployed Treasury funds that cannot be instantly withdrawn will be discounted to account for illiquidity. Each Approved Eligible Transaction will have coverage limits and other key terms specified in a Risk Participation Agreement.

If Anzen TVL equals $10 million (after discounting for staked pool illiquidity) and the only Approved Eligible Transactions consist of the following:
  1. 1.
    $20 million principal value with 5% coverage
  2. 2.
    $5 million principal value with 20% coverage
  3. 3.
    $5 million principal value with 40% coverage
  4. 4.
    $10 million principal value with 10% coverage
Then, the Coverage Ratio would equate to $10 million / $5 million, or 200%
If Anzen TVL equals $10 million (after discounting for staked pool illiquidity) and the only Approved Eligible Transactions consist of the following:
  1. 1.
    $20 million principal value with 20% coverage
  2. 2.
    $5 million principal value with 50% coverage
  3. 3.
    $5 million principal value with 100% coverage
  4. 4.
    $10 million principal value with 25% coverage
Then, the Coverage Ratio would equate to $10 million / $14 million, or ~71%

A Coverage Ratio expressed as a percentage of 200%, would indicate a low utilization rate whereas a Coverage Ratio expressed as a percentage of ~71% would indicative a high utilization rate. This is critical to the Value Flywheel as a high utilization rate would drive outsized Reserve Payments relative to Anzen's TVL and therefore increase ANZ and vzANZ yields. A low utilization rate would entice Eligible Sponsors to submit more prospective Eligible Transactions given the excess capacity available under a Covered Default scenario providing comfort to Eligible Transaction investors. This comfort to Eligible Transaction investors helps drives lower funding costs for Eligible Transaction borrowers, providing further incentive alignment.
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