Confidential Collateral Pool

The App operates as follows:

1. Setup and Preparation

The FIs agree to use this new confidential system. The confidentiality infrastructure use Secure Multi Party Computation (MPC) to safeguard and protect the data owned by counter parties. This infrastructure allows onchain contracts performing calculations on encrypted data (balances, collateral amounts, etc.).

2. Posting the Collateral

Bank A wants to borrow money from Bank B. Bank A must first lock up sufficient collateral in the smart contract pool.

Bank A encrypts the amount of tokens it is depositing (as a collateral) and sends a transaction to the confidential collateral management smart contract.

Privacy Feature: Thanks to Soda Labs' MPC infra, the confidential collateral management smart contract can receive and operate on encrypted values. Observers (blockchain scanners) only see random-looking data moving on the public ledger. The total size of the collateral pool as well as the share of each counter party remains secret.

3. Monitoring the Collateral Position

Both banks need to continuously verify that there is enough safety net in place as the market value of the collateral changes.

The confidential collateral management smart contract constantly runs calculations on the encrypted data to make sure the value of the collateral relative to the amount borrowed without ever revealing either number publicly.

4. The "Margin Call" Trigger (Risk Management)

If the value of the collateral drops suddenly (e.g., the stock market crashes, and the stocks used as collateral are worth less), the borrower must add more assets to the pool to maintain the safety net.

The smart contract has a built-in function that uses an off-chain price feed (an oracle) to check current market prices. This calculation happens confidentially. If the calculation determines the collateral value is too low, it automatically flags the account for a margin call—an automated alert requiring the borrower to top up their collateral.

5. Withdrawing or Settling the Collateral

Once the loan is fully repaid (settled), Bank A is entitled to get its original collateral back.

Bank A initiates a withdrawal request. The smart contract verifies that the loan obligation is settled and releases the confidential tokens back to Bank A's wallet.

Terms:

[Tokenized Collateral] means converting a real-world asset (RWA)—like a US Treasury bond or a share of stock—into a digital, blockchain-based token. Each token represents ownership of that underlying asset. In this architecture, these tokens are confidential, meaning only the owner knows how many they have, even though the token lives on a public blockchain.

[Collateral Position]: This is simply the status of the assets held as security—is there enough coverage, or is there a shortfall? The collateral management contract can automatically verify the health of this position privately.

[Settling Collateral]: This term refers to the final act of returning the assets to the original owner after all obligations (the loan repayment) have been satisfied.