A backstop for the rare case.
The Risk Fund is Rheofi's protocol-level reserve. It absorbs bad debt and protects suppliers from losses caused by under-collateralized positions — without depending on a multisig, a treasury vote, or off-chain coordination.
The Risk Fund is funded through a dedicated share of protocol revenue — currently 20% of all reserve distributions — supplemented by liquidation spreads. These inflows ensure the buffer scales with the platform's total exposure.
A shortfall occurs when a borrower's position is under-collateralized and liquidation cannot fully recover the outstanding debt. The protocol monitors account health continuously; when residual bad debt remains after a liquidation, the shortfall is logged against the affected market.
Lot published
The bad-debt amount is published as an auction lot, available to any participant on-chain.
Bidding
Bidders compete to repay the debt in exchange for discounted Risk Fund assets. Bids are expressed as basis points.
Settlement
After the auction window closes, the most favorable bid wins. The winner pays the bad debt; market accounting is restored.
Once the auction concludes and the winning bidder repays the debt, the protocol's bad-debt ledger is updated and the market resumes normal operation. If the Risk Fund is ever insufficient to fully cover a shortfall, governance may authorize supplementary measures — treasury allocations or targeted token distributions — through standard RIP processes.