Recovery Lifecycle
How Torq moves from an impaired borrower bucket to a governed recovery-fund acquisition and side-pocket exposure.
The recovery lifecycle separates three decisions that must not be conflated: liquidating an unhealthy borrower position, accounting for residual loss in the originating vault, and deciding whether a separate recovery fund should acquire an impaired asset.
From impairment to side pocket
| Stage | What happens | What it does not mean |
|---|---|---|
| Liquidation review | A liquidator reviews an indexed unhealthy borrower bucket, its protective price, close factor, and settlement route. | It does not guarantee that collateral covers all debt. |
| Liquidation settlement | A permitted liquidation can repay debt and seize collateral within the applicable limits. | It does not itself crystallize a realised loss. |
| Loss crystallization | markLoss can write off the remaining borrower bucket in the originating vault-market partition. | It does not automatically create a recovery-fund purchase or prove that no liquidator remains. |
| Recovery proposal | A manager identifies an asset, seller, valuation context, quote amount, epoch, and evidence for a potential acquisition. | It does not move fund assets until the exact action is approved and executed. |
| Controlled acquisition | A closed fund epoch commits quote assets to the approved seller and receives the specified distressed asset. | It does not give the originating vault's historical depositors a fund claim. |
| Side-pocket exposure | The fund records the acquired lot, cost basis, evidence, claim units, remaining asset, and realized proceeds separately. | It does not make the exposure liquid or guarantee a sale. |
What authorizes an acquisition
For a V3 acquisition, the approved action is bound to the fund, case, epoch, seller, distressed asset, asset amount, quote amount, and evidence hash. The fund also requires a closed epoch with sufficient idle capital and the manager's scoped trading permission. Changing a material term requires a new approval.
Loss accounting creates a recovery problem for the originating vault. It does not give a manager a blank authority to buy assets or move investor capital.
What happens to vault recovery cash
Recovery cash paid to the originating vault applies against its realised loss first. Only surplus recovery follows the vault's reserve and queue-supporting path. That accounting is distinct from a recovery fund's proceeds, which are allocated to the fund side pocket that earned them.
Evidence and confirmed state
Every material recovery action carries an evidence reference and must appear in the canonical read model after its onchain confirmation. Use the indexed status and activity rows—not a pending wallet receipt—to decide whether an acquisition, sale, RFQ, auction, or claim has completed.