Direct Loan

Deposit ZAP, borrow QOM at up to a proposed 40% LTV with a 50% liquidation threshold and a 24-hour grace period before any forced unwind. The closed-form rule is simple: your position survives any ZAP drawdown smaller than $1 - L_{\mathrm{LTV}}/L_{\mathrm{LT}} = 20\%$ at the proposed LTV. Borrow well below the maximum and that survival distance grows linearly. Numbers below are proposals; final values fixed at official launch.

Things to know before you borrow

• Your interest rate is variable. You sign at one rate, but it changes every block based on pool utilization. A spike to 60–72% APR is possible during high-demand periods. Budget for the panic-zone rate, not the launch-day rate.
• Interest grows your debt silently. A loan you ignore gets more dangerous over time, not less. Even with simple-interest accrual, a year of 12% adds 12% to what you owe.
• You can be liquidated even if ZAP/QOM doesn't move. Accrued interest alone can push your HF below 1 if you borrowed near the cap. The trigger isn't only price — it's the ratio of debt-with-accrued-interest to collateral.
• Liquidations are partial. A single liquidate call clears at most 50% of your debt. You can be liquidated multiple times on separate calls before the position is fully closed.
• Your risk is in ZAP/QOM, not ZAP/USD. If QOM and ZAP both fall the same percentage in USD, your position is unchanged — the ratio is what matters. Only ZAP weakening against QOM erodes your collateral coverage.

Mechanics

1. Deposit ZAP into the pool as collateral.
2. Borrow up to a proposed 40% LTV in QOM. Origination fee is deducted from the principal at funding.
3. Interest accrues at the variable borrow APR (see Rate Card).
4. Repay any time. No fixed term.
5. If your health factor $\mathrm{HF}$ falls below 1 and stays below 1 past the proposed 24-hour grace window, anyone can repay up to 50% of your debt and seize your ZAP at a proposed 12% discount.

Borrower lifecycle — every possible outcome

Two terminal states: ✅ borrower repays in full and walks away with their ZAP, or ⚠️ ZAP is seized via partial liquidations (or by the reserve backstop if no keeper appears) until the debt is cleared. Borrowers who walk away just trigger the liquidation path automatically.

Health factor — derivation

Let $C$ be your ZAP collateral balance, $p$ the ZAP/QOM price (in QOM per ZAP), $D$ your QOM debt, and $L_{\mathrm{LT}}$ the liquidation threshold (50% in the base calibration). The health factor is the coverage ratio of risk-weighted collateral over debt:

$$\mathrm{HF}(p) \;=\; \frac{C \cdot p \cdot L_{\mathrm{LT}}}{D}.$$

The position is solvent for $\mathrm{HF} \ge 1$ and liquidatable (after grace) for $\mathrm{HF} < 1$ — with $L_{\mathrm{LT}}$ proposed at 50% in the base calibration. Solving $\mathrm{HF}(p_{\text{liq}}) = 1$ gives the liquidation price:

$$p_{\text{liq}} \;=\; \frac{D}{C \cdot L_{\mathrm{LT}}}.$$

If you originated at price $p_0$ with initial LTV $L_0 = D / (C \cdot p_0)$, the relative drop required to push you to liquidation is

$$\boxed{\;\Delta p_{\text{liq}} \;=\; 1 - \frac{p_{\text{liq}}}{p_0} \;=\; 1 - \frac{L_0}{L_{\mathrm{LT}}}.\;}$$

This is the only formula a borrower needs. At the proposed maximum LTV $L_0 = L_{\mathrm{LTV}} = 40\%$ and $L_{\mathrm{LT}} = 50\%$, $\Delta p_{\text{liq}} = 1 - 0.8 = 20\%$. Borrow at half the cap ($L_0 = 20\%$) and your survival distance doubles to 60%.

Sensitivity grid — health factor as function of (initial LTV × ZAP drawdown)

Numbers are HF after a $\Delta p$ drawdown from origination. Cells flagged red are below 1 (liquidatable after grace); orange are within 10% of trigger; green are well clear.

L₀ \ Δp	0%	−10%	−20%	−30%	−40%	−50%
10%	5.00	4.50	4.00	3.50	3.00	2.50
20%	2.50	2.25	2.00	1.75	1.50	1.25
30%	1.67	1.50	1.33	1.17	1.00	0.83
40%	1.25	1.13	1.00	0.88	0.75	0.63
45%	1.11	1.00	0.89	0.78	0.67	0.56

Row 4 column 3 is the proposed-base corner case: borrowing at the max 40% LTV puts you at HF = 1.00 after a 20% ZAP drawdown — exactly at the trigger, with grace still buying you 24 hours. Conservative borrowers stay one column to the left.

Worked example — proposed base calibration

All values in QOM (the unit of account), priced from the ZAP/QOM TWAP on QomX. There is no QOM/USD oracle. Take origination ratio $p_0 = 0.5$ QOM/ZAP for the example.

Step	Value
Deposit	1,000 ZAP @ $p_0 = 0.5$ QOM/ZAP = 500 QOM collateral
Max borrow at 40% LTV	200 QOM
Origination fee (1.5%)	3 QOM deducted from principal
QOM received in wallet	197 QOM
Debt owed	200 QOM + accruing interest
Liquidation ratio ($p_{\text{liq}} = D / (C \cdot L_{\mathrm{LT}})$)	$0.4$ QOM/ZAP (a $-20\%$ move in ZAP/QOM from origination)
Equivalent: ZAP drawdown to liquidation	$\Delta p_{\text{liq}} = 1 - 0.40/0.50 = 20\%$
Grace window after $\mathrm{HF} < 1$	24h to top up or repay

Risk note

Direct loans expose you to ZAP price volatility. A 20% drawdown from your origination price triggers liquidation at the maximum LTV. Position-sizing rule of thumb: the survival distance $\Delta p_{\text{liq}}$ scales linearly with how far below the cap you borrow — half the cap doubles it.

Lender side

QOM holders deposit QOM and receive a pool share. The lender APY at any moment is

$$R_l(U) \;=\; R_b(U) \cdot U \cdot (1 - \phi),$$

where $R_b(U)$ is the borrow APR from the Rate Card, $U$ is current utilization, and $\phi = 25\%$ is the proposed reserve factor. The factor of $U$ enters because lenders earn only on the lent fraction of the pool — idle deposits earn nothing.

Withdrawals are first-come, first-served against available liquidity: you can withdraw at most $D - B$ at any moment. The proposed steep $s_2 = 60\%$ slope above the 80% kink is what keeps that withdrawal buffer from collapsing — at $U = 95\%$, the borrow APR is $57\%$ and the lender APY is over $40\%$, both of which rapidly bring the pool back to a healthy utilization.

Things to know before you deposit as a lender

• Your APY is variable. It can change every block. The 7% you saw at deposit might be 4% next week if utilization drops, or 25% if it spikes. There's no rate-lock.
• Idle pool deposits earn nothing. Your APY is $R_l = R_b \cdot U \cdot (1-\phi)$ — the $U$ factor means only the lent fraction of the pool earns. A 10%-utilized pool with a 5% borrow rate gives you ~0.4% APY, not 5%.
• Withdrawals can be temporarily blocked. If the pool is fully utilized, you wait for borrowers to repay or new lenders to deposit. The panic-zone APR (60%+ above the kink) makes this self-correct fast — typically hours, not days — but it's not instant.
• No lock period. Unlike ZAP Staking on staking.zaphod.one, Forge depositing has no minimum duration. Deposit and withdraw whenever; there is no lock multiplier or commitment period.
• Bad-debt exposure is non-zero. The reserve absorbs first; only after the reserve is depleted do depositors face pro-rata loss. This is the "tail event" branch of the lender lifecycle diagram below — modeled to be unreached but not zero by construction.

Lender lifecycle — every possible outcome

The default lender experience is the green branch: deposit, earn, withdraw whenever you want (provided D − B > 0). The yellow "wait" branch only activates during sustained high utilization — and even then, the panic-zone APR pulls borrowers out fast. The red branch is the explicit tail risk; the reserve-backstop architecture is what makes that branch unreached under modeled conditions.

Why pool size matters less than you'd think. A 100M-USD Direct-Loan pool at $U = 80\%$ pays the same lender APY as a 1M-USD pool at $U = 80\%$ — the utilization fraction is what matters, not the absolute size. This is the core property of a kinked-IRM pool that makes Aave-style designs scale: lenders get the same APR per dollar regardless of how much capital is alongside theirs, as long as utilization holds. The benefit of a larger pool is liquidity (more headroom for big repays/withdrawals) and risk diversification (one whale's liquidation is a smaller share of the pool), not yield.