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Solver Lifecycle

A solver in IRIS is not just providing a rate. Once a quote is accepted, the solver is carrying a live fixed-rate promise backed by real debt-asset capital.

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1. From quote to live protection

When a borrower accepts a quote, three things happen at once:
  • borrower collateral moves into a dedicated isolated account,
  • a live borrowing position opens on the chosen venue,
  • solver backing in the debt asset is posted against that exact position.
From that point on, the position is no longer theoretical inventory. It is live exposure that must either stay healthy, be closed cleanly, or be pushed into one of the forced resolution paths below.

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2. While the position is live

A live protected position needs active monitoring across a few separate dimensions:
  • current venue funding cost,
  • headroom between posted backing and required backing,
  • borrower collateral changes,
  • whether a better allowed venue is available,
  • whether any venue-side event has already shrunk the position and needs to be recognized.
During this phase:
  • third parties can top up borrower collateral,
  • third parties can add more solver backing,
  • the borrower or its operator can reduce collateral only while the position remains safe,
  • the solver or its operator can remove only true excess backing,
  • the solver or its operator can move the position to another allowed venue.
If the venue has already partially liquidated, partially closed, or otherwise shrunk the position, solvers should not reason from stale expected balances. That smaller venue state has to be recognized before judging remaining backing, true close cost, or whether any backing is actually excess.

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3. When backing can actually come back out

Solver backing does not become free just because time has passed. Backing can come back out only when it is genuinely excess to the position’s remaining protection need. In practice, three things all have to be true:
  1. posted backing still sits above the required floor,
  2. accumulated floating losses have not already eaten too far into the cushion,
  3. removing the amount would still leave the position healthy if conditions stopped improving immediately.
Reaching maturity by itself is not enough. If the position has not been economically resolved yet, backing is still doing real work.

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4. Normal borrower close

A normal close can be funded by any party willing to provide the debt asset needed to unwind the venue position. That close first settles the economics of the fixed-rate wrapper:
  1. borrower fixed obligations are finalized,
  2. the venue’s realized floating cost is measured,
  3. positive spread and recognized surplus are booked to claimable balances,
  4. negative spread is absorbed by solver backing first,
  5. the venue debt is repaid and protection is switched off.
One subtle but important detail: economic close does not automatically hand the borrower’s collateral back. The protected loan can be resolved while the remaining venue position still needs a final unwind before leftover collateral is released.

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5. Final borrower exit

After protection has ended, the remaining venue position can be unwound and leftover collateral released back to the borrower. From the solver’s point of view, this is no longer the fixed-rate protection problem. It is the final asset exit and cleanup step. If there is still residual venue debt or venue dust, the party finishing the unwind must still fund that last amount.

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6. Backing distress liquidation

This is the solver-failure path. It can happen even before the borrower is late. If floating losses have consumed too much of the backing cushion, anyone can force a distress liquidation. That process:
  • slashes solver backing,
  • uses slashed backing to repay as much venue debt as possible,
  • pays a liquidation incentive,
  • ends fixed-rate protection for that position.
This path is different from borrower default. The trigger here is not borrower lateness. The trigger is that solver backing is no longer strong enough to keep the protected promise credible. Any slashed debt asset that is not needed for venue repayment or the liquidator incentive is not returned to the solver.

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7. Overdue borrower liquidation

This is the borrower-lateness path. If the borrower stays open beyond maturity and the allowed overdue window, anyone can force a close against borrower collateral. The liquidator provides what is needed to close the debt side and receives collateral at an incentive. Solver backing is still part of the settlement waterfall, but the reason the position is being forced shut is borrower lateness rather than backing failure. If collateral remains after the forced close, the borrower can still recover the remainder once the position is fully resolved.

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8. Realized value and locked capital are different things

A solver can already have realized economics before all of its capital is free again. Positive spread and recognized collateral-side surplus are booked separately as claimable balances. That is different from backing capital, which can stay committed until the position is clearly healthy or fully resolved. Good operations separate four buckets in practice:
  • realized profit,
  • still-committed backing,
  • backing that looks excess but is still economically at risk,
  • backing already consumed by negative carry.

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What a solver should monitor every day

  • how far current floating funding sits from the fixed rate promised to the borrower,
  • how much true excess backing remains,
  • whether any venue migration would meaningfully reduce risk,
  • whether borrower collateral has moved enough to change the operating buffer,
  • whether any position is drifting toward backing distress or overdue borrower resolution.
For the capital rules behind these flows, see Bond Mechanics.