Advance facility
The Kalyan protocol permits a holder to obtain a non-recourse advance against the minimum redemption value of their shares. To do so, the holder places the shares into lock-up and receives an amount of the reserve asset of up to the shares’ current minimum redemption value. While the advance is outstanding, the locked shares are not eligible for redemption.
The holder is not subject to a repayment obligation in the ordinary sense. Rather, repayment is only required if the holder wishes to terminate the lock-up, recover the shares, and regain the ability to redeem or otherwise dispose of them. If the holder does not do so, the position remains fully satisfied by the locked shares themselves.
The facility is designed to remain fully covered at all times. Because the minimum redemption value of the shares does not decline, and because the pledged shares cannot be redeemed while the advance is outstanding, the amount advanced does not exceed the minimum reserve value attributable to the collateral. In economic terms, the structure converts a portion of the holder’s floor value into immediate liquidity without introducing undercollateralization into the system.
Guide for this module
This module shows how the advance facility remains fully covered at all times.
The chart shows the distribution of liquidity across the global market in the form of the pricing formula, which is a function of share supply to market value. The area under the curve represents the total reserve value.
In this simulation, there is a lone trader who can subscribe, draw an advance, and close their position.
The control panel under the chart is for the "global market" to subscribe, redeem, or rest stationary. By causing the greater market to subscribe or do mass redemptions, you can see how the system remains solvent even when liquidity is withdrawn as an advance to the trader.