The rule
What a settlement actually computes
Every coverage type settles on the same shape. What changes is what the words mean.
A cell defines two quantities for each observation period: what was expected, and what was realised. The gap between them is the loss. A holder is paid their cover scaled by that gap, capped at their cover, and the sum of payouts is capped at the reserve.
For a missed coupon, expected is the amount owed and realised is what actually arrived. For a NAV floor, expected is the attested floor and realised is the observed NAV. For a parametric index, expected is the trigger level and realised is the attested reading. The arithmetic never changes; only the definitions do, and each cell publishes its own before anyone commits.
Realised values are measured carefully. A credit cell counts receipts on an asset-received basis and treats a clawed-back payment as a shortfall rather than a payment. A NAV cell reads only an attested valuation at the stated observation date. The measurement rule is part of the pinned engine, not a matter of interpretation at settlement.
Loss
loss=expected−realised
$4,770,000−$3,290,000=$1,480,000
Payout
payout(holder)=cover(holder)×(loss÷expected)
$25,000,000×31.03%=$7,757,862
Worked above: a missed coupon on a $25m covered position. The percentage is not a judgement about severity; it is the gap the issuer actually left.
Each holder is paid their committed cover, scaled by the realised loss. The sum of all payouts can never exceed the reserve.
Where realised meets or exceeds expected, the loss is zero, every payout is zero, and there is nothing to settle. The program will not produce a proof for a non-event, whatever the coverage type, so no payout can be authorized. Protection that did not trigger cannot be claimed.
The same rule, four coverages
Each cell fixes these definitions at deployment, alongside its engine. Nothing here is decided when a loss occurs.
CoverageExpectedRealisedThe program refuses when
Missed payment
credit · live
The amount owed to holders for the period, fixed by the published schedule
Qualifying payments actually received, on an asset-received basis
Every holder was paid in full, so there is no gap to prove
NAV floor
valuation · specified
The attested floor the asset is covered down to
The attested valuation at the stated observation date
The valuation sits at or above the floor
Parametric index
index · pilot
The trigger level written into the cell
The attested reading for the observation window
The reading did not breach the trigger
Redemption failure
liquidity · specified
The redemption amount due at the request date
The amount actually redeemed within the stated window
The redemption settled in full and on time
The right-hand column is the part worth reading twice. In each case the refusal is not a policy the protocol enforces; it is a computation that has no valid output, so no proof exists to submit.