> ## Documentation Index
> Fetch the complete documentation index at: https://docs.mezzamine.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Principal Protection
> Pledged collateral, controlled hashrate, hedge value, LTV maintenance, and the recovery waterfall.
Lender principal is protected by a layered structure: pledged collateral, controlled hashrate and receipts, program-level hedge value, and a defined recovery waterfall that moves from liquid controlled assets to physical hardware. The [hedging model](/for-lenders/prime-lending/the-hedging-model) and [cash-flow control](/for-lenders/prime-lending/cash-flow-control) pages cover the hedge and controlled-receipt mechanics in detail. This page covers the collateral base, coverage maintenance, and recovery order.
## Pledged collateral
Eligible collateral can include posted BTC reserves, pledged hashrate and block rewards, ASIC hardware, infrastructure, energy contracts, and other approved property. The primary collateral is the mining fleet itself. Because Prime Lending is a BTC-denominated loan, the package is valued in BTC. The borrower posts BTC collateral as part of the package, typically around 30% of principal, and the combined package targets roughly 150% coverage of the loan. Financing is structured through a ring-fenced program vehicle with first-lien security over pledged program assets, perfected through UCC-1 filings.
Pledged ASICs are not credited at full market value. They are assessed at a discount of roughly 30% to 50% to current market value before entering the package, so \$1 million of ASICs supports about \$500,000 to \$700,000 of assessed collateral value, which is then denominated in BTC. Efficient machines retain operating usefulness and secondary-market demand deeper into a downturn, while older machines experience faster economic obsolescence. The decisive credit issue is the price realized during stress, which is why the hedge is designed to create value during the same BTC decline that compresses ASIC prices.
### Why hardware is credited as collateral
Crediting the fleet changes the composition of the collateral package, not the level of coverage. A BTC-only facility reaches roughly 150% coverage entirely in Bitcoin. A Mezzamine program reaches comparable coverage with about 30% of principal in posted BTC and the assessed value of the fleet behind it, under a first-lien claim.
Four conditions have historically kept lenders from crediting mining hardware. Each is addressed by a specific mechanism.
| Obstacle | Mechanism |
| ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ |
| No reliable mark. Secondary markets are thin, and value depreciates with network difficulty and hardware cycles. | Assessed at a 30% to 50% discount to market, denominated in BTC, and marked through the life of the facility. |
| Collateral value falls at the same time the borrower's ability to repay falls. | The program hedge is built to generate value during that same decline. See [The Hedging Model](/for-lenders/prime-lending/the-hedging-model). |
| No visibility into what a fleet actually produces. | Production verified at the source through pool, wallet, and power data, with breakeven modeled and stress-tested across BTC price paths. |
| Repossession is difficult. Machines sit in third-party facilities, often across borders. | First-lien security perfected by UCC-1 filing, controlled receipts, and a logistics partner for collection, testing, transport, and remarketing. |
The second row is the load-bearing one. Without it, hardware is an asset a lender would be seizing at its weakest price for the same reason the loan defaulted, which is why the market has priced it at zero borrowing capacity.
## Pledged hashrate
Pledged hashrate is controlled by routing the fleet's block rewards to a monitored program address. This gives the program a controlled, verifiable production stream rather than an unsecured claim on the operator's output. The mechanics of controlled receipts and the operating waterfall are described in [Cash-Flow Control](/for-lenders/prime-lending/cash-flow-control).
## Hedge value
Hedge positions, margin, and profits are pledged to the program but are excluded from opening LTV unless otherwise specified in the facility terms. During the life of the program, hedge profits accrue to the lender and may, with lender approval, support debt service during adverse conditions. In default, hedge margin and realized hedge profits are liquidated and transferred to the lender as part of collateral recovery.
## LTV and coverage maintenance
The target LTV is 60% to 70%, which corresponds to roughly 150% collateral coverage, measured as:
LTV = outstanding loan value / eligible pledged collateral value
In the reference facility, a 30 BTC loan (about \$2.4 million at \$80,000 spot) against \$3.68 million of opening eligible collateral starts at approximately 65.2% LTV. Coverage is monitored throughout the term. A coverage breach can require additional BTC, hashrate, or approved assets. The maintenance process prevents a declining collateral base from silently increasing lender leverage as principal amortizes or asset values change.
## Recovery waterfall
If a scheduled payment remains uncured after the cure period, an event of default is triggered and recovery moves from liquid and controlled assets toward less liquid physical assets:
BTC reserves and controlled mining receipts are applied first. Controlled BTC receives a small realization haircut for transfer and execution costs.
Hedge margin and realized hedge proceeds are liquidated next, subject to an execution and transfer haircut.
Remaining shortfalls are recovered through liquidation of pledged ASICs and other real-world assets, using a modeled secondary-market value net of liquidation and sale costs.
The model assumes a 30-day process for liquid BTC and hedge assets and a 60-day base process for hardware collection, testing, transport, and sale. Specialized data center hardware logistics firms, ASIC manufacturers, and secondary sellers may be engaged for repossession and liquidation logistics.
## Reference recovery in severe stress
The severe combined stress scenario is the reference tail case, combining a BTC decline from \$80,000 toward the mid-\$30,000s within eight months, 35% annual network growth, 90% uptime, higher power cost, exhausted borrower liquidity, and an additional haircut on ASIC recovery. It shows how the recovery layers stack.
| Recovery source | Fleet Hedge | Principal Hedge | Both layers |
| -------------------------------- | ----------- | --------------- | ----------- |
| Principal outstanding at default | 14.13 BTC | 18.75 BTC | 14.13 BTC |
| Controlled BTC after haircut | 5.88 BTC | 5.88 BTC | 5.88 BTC |
| Controlled hedge value used | 0 BTC | \~6.17 BTC | \~6.14 BTC |
| ASIC and other pledged recovery | \~8.25 BTC | \~6.70 BTC | \~2.11 BTC |
| Total recovery after default | 14.13 BTC | 18.75 BTC | 14.13 BTC |
| Principal loss | 0 BTC | 0 BTC | 0 BTC |
The unhedged structure carries the only modeled principal loss in this tail case. Each hedged structure closes the gap through a different combination of delayed default, banked hedge value, and reduced dependence on a forced hardware sale.