# FLAM Collateral

In addition to the base insurance from the Lender's Guarantee, the lenders and the renters will be required to stake a certain amount of FLAM tokens as collateral in order to disincentivize malicious behavior.

Since FLAM tokens will have real-world value, with an expectation to increase in value as Flambu ecosystem grows and succeeds, requiring users to stake FLAM tokens as collateral during transactions will provide the following advantages:

Renters will have their FLAM tokens at stake, so they will be incentivized to keep the items they rent in good shape, and return in time properly

Lenders will have their FLAM tokens at stake, so they will ensure that the items they lend are as described, as well as avoid last-minute cancellations

The amount of FLAM tokens that each side of a rental will be required to stake, will be determined by an algorithm, which will consider several parameters and will be improved in time through Machine Learning. The calculation for FLAM tokens to be staked will be calculated as follows:

**For lenders: **

$S(l) = p/c * (1-d(l))$

Where:

$S(l)$ is the FLAM amount to be staked by the lender

$p$ is the total price of the rental

$c$ is the

*Value per Collateralized FLAM Coefficient*and is initially equal to$d(l)$ is the

**For renters:**

$S(r) = V/c * (1-d(r))$

Where:

$S(r)$ is the FLAM amount to be staked by the renter

$V$ is the

*Estimated Market Value*of the item provided by the lender upon listing and verified by the Flambu team$c$ is the

*Value per Collateralized FLAM Coefficient*and is initially equal to$d(r)$ is the

This mechanism minimizes the risk on the Insurance Pool so that potential damages or inconveniences will not be fully covered by the Insurance Pool, but partially be paid by the faulty side of a given transaction.

**Example:**

For simplicity let's assume 1 FLAM = US$1 at the time of the rental

Alice has a snowboard with a verified

*Estimated Market Value*of**US$2000**and listed on Flambu for rent for**US$50/day**Bob wants to rent Alice's snowboard for 4 days in total and the total price for the rental is

**US$200**Bob has a discount of 10% for the collateral since he has so far a good reputation on the platform and therefore needs to stake

**180 FLAM**(with $c$ = US$10/FLAM)**US$220**(including 10% renter's base fee) worth of FBX paymentAfter Bob sends his request, Alice accepts it by staking 15 FLAM (with a discount of 25% thanks to her reputation and with $c$ = US$10)

The following adverse circumstances may occur:

For simplicity, assuming that 1 FLAM = US$1 at the time of the rental

if Bob damages the item or doesn't return it, he will lose US$180 worth of FLAM tokens, plus damage to his reputation. The remaining damage of US$1860 to Alice will be covered by the Insurance Pool as FLAM tokens directly deposited in her account

if Alice doesn't provide the item in time, or the item was not as described in the listing, Bob will be compensated with 15 FLAM from Alice's stake, plus 35 FLAM from the Insurance Pool which in total equals to the rental price of the snowboard for a day. Bob will of course receive his payment back immediately following this situation.

For the sustainability of the insurance pool, in those adverse circumstances, $c$, the

*Value per Collateralized FLAM Coefficient,*may be adjusted to a lower value so that the risk of the insurance protocol is lowered. In contrast, when there are fewer adverse incidents, the value of $c$ can be adjusted to higher values so that the users will have less friction of staking higher amounts of FLAM tokens.

In the event that everything goes well from the beginning until the end of the rental, Alice and Bob will receive their staked FLAM tokens back in addition to their calculated CashBack amounts in FLAM and Alice gets her payment minus fees.

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