> For the complete documentation index, see [llms.txt](https://docs.adcpcapital.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.adcpcapital.com/protocol/credit-and-collateral.md).

# Credit and Collateral

`CreditEngine` and `CollateralVault` implement ADCP's overcollateralized, BTC-secured credit capability — the mechanics underneath [BTC-Secured Credit](/products/btc-secured-credit.md).

## Position lifecycle

1. **Origination** — a borrower posts BTC collateral and originates a USDC loan, subject to a maximum origination loan-to-value (LTV) and a minimum loan size. Origination is blocked whenever the oracle reports anything other than a healthy price (see below), or when the requested amount would exceed the protocol's eligible-deployable-capital ceiling.
2. **Accrual** — the position accrues interest under an immutable-per-deployment interest-rate configuration.
3. **Health monitoring** — a position's health factor is derived from live collateral value (at oracle price) against outstanding debt. A health factor at or below the configured liquidation threshold makes the position eligible for liquidation.
4. **Liquidation** — an eligible position may be liquidated under a deterministic, immutable-per-deployment configuration: a liquidation bonus and protocol fee (paid from collateral, not from other participants' capital), and a close factor governing how much of the position a single liquidation call resolves.
5. **Repayment / withdrawal** — full or partial repayment reduces outstanding debt; collateral withdrawal is permitted only where a post-withdrawal safety check confirms the remaining position stays healthy.

## Oracle health

Every risk-increasing action (origination, a withdrawal that could reduce collateral coverage) checks an explicit oracle health classification before proceeding:

| State         | Meaning                                                                                | Effect                                                                                                                |
| ------------- | -------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- |
| `VALID`       | Price is fresh and trusted.                                                            | Normal operation.                                                                                                     |
| `STALE`       | Price has not updated within its configured freshness window.                          | Risk-increasing operations blocked.                                                                                   |
| `UNAVAILABLE` | No usable price at all (including an unhealthy sequencer, on an L2).                   | Risk-increasing operations blocked; this state alone also blocks liquidation under the current pilot's configuration. |
| `DEVIATING`   | The primary and an independent reference price disagree beyond a configured threshold. | A caution signal only — does not itself block origination, withdrawal, or liquidation.                                |

## Collateral accounting distinctions

* Borrower-posted collateral (`ThirdPartyCollateral`) is disclosed for transparency but is never summed into the protocol's own owned-asset total — it is borrower property, held under lien for liquidation purposes, not protocol equity.
* Outstanding borrower principal — what a borrower still owes — *is* tracked as a protocol-owned receivable.
* **Collateral coverage** (collateral value at oracle price divided by outstanding principal) is a derived, published transparency figure, never itself an accounting asset line.

## What this pilot does not claim

Every parameter used in the current controlled pilot (LTV, liquidation threshold, interest-rate range, bonus/fee/close-factor, minimum loan size, maximum maturity, utilization/debt ceilings) is an initial pilot calibration. None is claimed to be empirically optimal, and none is a promise about any future production deployment's parameters.


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