Collateral System

GHOST requires borrowers to post overcollateralized positions using a different token than the one being borrowed. The collateral amount is determined by the borrower's credit tier and the current market value of the collateral asset.

Collateral Multiplier

The required collateral is calculated as:

requiredCollateral = (loanAmount * multiplier) / collateralPrice

Where multiplier depends on the borrower's credit tier:

Credit Tier	Multiplier	Effective LTV
Bronze	2.0x	50%
Silver	1.8x	55.6%
Gold	1.5x	66.7%
Platinum	1.2x	83.3%

New users start at Bronze tier. Tier progression is based on repayment history (see the Credit Tiers section).

Collateral Validation

When a borrower submits a borrow intent, the server validates that the offered collateral meets the minimum requirement:

1. Fetch the borrower's credit tier from the credit score model
2. Look up the collateral multiplier for that tier
3. Fetch the current collateral token price (ETH/USD from Chainlink feeds)
4. Compute requiredCollateral = (borrowAmount * multiplier) / ethPrice
5. Reject if offeredCollateral < requiredCollateral

The borrower must have already deposited the collateral into the vault and transferred it to the GHOST pool before submitting the borrow intent.

Supported Collateral Pairs

Currently, GHOST supports a single collateral pair:

Borrow Token	Collateral Token	Price Feed
gUSD	gETH	Chainlink ETH/USD on Arbitrum

The price feed is read by the CRE via the EVMClient using Chainlink Data Streams, ensuring that collateral valuations are tamper resistant.

Collateral Lifecycle

At Loan Creation

When a match proposal is accepted and a loan is created:

• The collateral remains in the GHOST pool (already transferred during borrow intent submission)
• The server records the collateralAmount and requiredCollateral on the loan
• The loan's health factor is initially above the liquidation threshold

During Active Loan

While the loan is active:

• The CRE periodically checks the health factor via the check-loans workflow
• Health factor is computed as (collateralAmount * currentEthPrice) / principal
• If the collateral value drops, the health factor decreases
• Borrowers can claim excess collateral if their position is overcollateralized beyond the required amount

At Repayment

When the borrower repays the loan in full:

• Principal plus interest is distributed to lenders (each at their tick rate)
• Full collateral is returned to the borrower via a queued transfer
• The borrower's credit tier may be upgraded

At Liquidation

If the health factor falls below the liquidation threshold (1.5x):

• The loan is marked as defaulted
• 5% of collateral goes to the protocol as a liquidation fee
• 95% of collateral is distributed pro rata to lenders based on their tick amounts
• The borrower's credit tier is downgraded

Excess Collateral Claims

If a borrower posted more collateral than required (for example, ETH price increased after loan creation), they can claim the excess via the claim-excess-collateral endpoint.

The claimable amount is computed as:

excess = collateralAmount - requiredCollateral

Where requiredCollateral is recalculated at the current ETH price. This allows borrowers to free up capital without repaying the loan.

Soft Locking (Production)

In the production architecture, collateral is soft locked on chain via the GhostVault contract's lockedBalances mapping. This prevents borrowers from withdrawing locked collateral through the vault's normal withdrawal flow while still keeping the balance in their shielded address.

The locking mechanism uses a DON signed report to increment/decrement lockedBalances[user][token]. The vault's withdraw function checks that balance - lockedBalances >= withdrawAmount, ensuring locked funds cannot be extracted.