3.2.4. MCR or Minimum Capital Risk

Role: indicator of the limit of NFTs that the GF could guarantee in the current conditions.

MCR = Q(x) of months of non-payment before collection * Maximum historical delinquency rate2Average_monthly_income_value*Q_tokenized_contracts. (number of contracts tokenized-annualized)

To understand the functioning and calculation of the MCR, it is necessary to know the unit economics in the rental market;

The average time to recover a non-payment is 4 months, so we have taken 6 months as a reference (penalty of 50%). The rate of non-payments is rarely above 3%, and with a professional filter of the tenant (via know-how), it is usually much lower, as has already been established for the % NP. However, to calculate the MCR, we have taken the highest historic default rate (7.5%) and have multiplied it by 2 (7.5%x2=15%), penalising the market parameters up to 750%, and the historic highs of the market by 150%.

Therefore:

MCR =6*15% *T.NFTs MCR = Q(x) of months of non-payment before recovery * Maximum historic default rate x2 * Total capital in NFTs issued

Hence, the MCR is an indicator of the limit of NFTs that the guarantee fund could guarantee with the current conditions of liquidity. The MCR will act by blocking the creation/issue of new NFTs if the Guarantee fund does not have enough capital, while it is also an indicator of the need to increase the capital of the GF.

GF Total Capital = LCA + RF GF Total Capital = LCA = RF MCR =6*(7.5%x2)*T.NFTs RF-MCR= Issue limit of NFTs

It is worth noting that the MCR is an internal indicator which does not really affect the composition of the RF since all of the capital involved in the RF is efficient interest-generating capital. In the same way, the variables used to calculate the MCR must be adjusted as the protocol has its own historic patterns.