Intraday Repo & Collateral

Intraday Repo and Collateral Management is in development. This page describes the planned architecture and flows. Details may change before launch.

Business Context

The repurchase agreement — repo — is the engine of institutional liquidity. A borrower sells a security to a lender with a simultaneous agreement to repurchase it at a specified price on a specified date. In economic terms, it is a collateralized cash loan: the lender earns the repo rate, the borrower obtains short-term funding, and the security acts as collateral that protects the lender against counterparty default.

The global repo market turns over trillions of dollars daily, and a significant portion of that volume is intraday: funding obtained in the morning and unwound before the end of the same business day. Intraday repo is used by banks and dealers to manage intraday liquidity requirements — covering settlement obligations, funding inventory, or bridging gaps between payment system cycles.

Despite its scale and importance, intraday repo remains operationally expensive. Settlement relies on legacy infrastructure (Fedwire, DTCC, Euroclear) with fixed processing windows that impose latency, cut-off risk, and operational overhead. Collateral substitution — replacing one security with another of equivalent quality — requires bilateral agreement and sequential settlement steps that can take hours. Margin calls on intraday positions are largely manual. And the bilateral nature of most repo means each desk maintains its own collateral inventory without visibility into firm-wide exposure.

The result is that a market designed to provide frictionless intraday liquidity is in practice constrained by the settlement infrastructure it depends on.

How Cocoon Enables Intraday Repo

Cocoon brings the repo workflow on-chain using tokenized collateral (ERC-3643 bond or securities tokens) and DBC confidential cash. Because both legs of the transaction live on the same programmable ledger, the repo can be structured as a single atomic DVP contract that:

• Transfers collateral from borrower to lender at initiation

• Releases DBC cash from lender to borrower simultaneously

• Holds both legs in escrow until maturity

• At maturity, automatically returns collateral to the borrower and cash plus interest to the lender in a single transaction

There is no settlement window. There is no bilateral confirmation exchange. There is no cut-off risk. The entire lifecycle — open, hold, and unwind — is governed by a smart contract that neither party can unilaterally alter once execution begins.

Because DBC cash uses RingCT commitments, the cash leg is confidential. Lenders do not expose their liquidity positions to the market; borrowers do not reveal their funding requirements. The compliance layer (OnchainID) ensures both parties have passed the required KYC/AML checks before the contract executes.

Repo Flow

Initiation

The borrower proposes repo terms on-chain: the specific collateral token(s) and quantities, the cash amount, the repo rate, and the maturity time. For intraday repo, maturity is expressed as a block timestamp within the same business day.

The lender reviews and accepts the terms. Once both parties have signed (in the on-chain sense — both have sent the required approvals), the DVP contract executes initiation atomically:

• The borrower's collateral tokens move from their wallet to the escrow held by the repo contract.

• The lender's DBC cash moves from their wallet to escrow and is simultaneously released to the borrower.

Both legs settle in a single transaction. If either side fails — insufficient balance, compliance rejection, collateral ineligible — the entire transaction reverts.

Holding Period

During the holding period, the collateral is held in the repo contract. The lender holds beneficial interest in the collateral. If the borrower defaults (fails to appear at maturity), the lender's claim on the collateral is enforced by the contract — no court order, no bilateral negotiation.

Collateral eligibility rules are enforced by the ERC-3643 compliance modules on the bond token. Only securities that pass the lender's eligibility criteria (rating, maturity, issuer jurisdiction) can be used as collateral. These criteria are encoded in the repo contract's collateral acceptance policy and checked at initiation.

Collateral Substitution

If the borrower needs to substitute collateral during the holding period — replacing one bond token with another of equivalent eligibility — this executes as a mini-DVP within the repo contract:

1. Borrower proposes substitute collateral.

2. Lender's eligibility policy is checked against the new collateral.

3. If accepted, the new collateral moves into escrow and the original collateral is returned to the borrower in a single atomic transaction.

There is no gap period during which the lender is uncollateralized.

Maturity and Unwind

At maturity (or any time after), either party can trigger the unwind. The repo contract:

1. Calculates the total repayment amount: principal DBC cash plus accrued interest at the agreed repo rate.

2. Returns the collateral tokens from escrow to the borrower.

3. Returns the repayment DBC cash from the borrower's wallet (or escrow top-up) to the lender.

Both legs settle atomically. There is no partial unwind.

Early Termination

The repo contract supports bilateral early termination: if both parties agree to unwind before maturity, the contract executes the unwind immediately at the pro-rated interest amount. Unilateral early termination is not permitted — the contract enforces the agreed maturity unless both parties consent.

Collateral Management

For institutions managing large collateral inventories across multiple repos, Cocoon's collateral management layer provides:

Eligibility schedules. Each repo contract references an on-chain eligibility schedule defining which token types, issuers, maturities, and ratings qualify as acceptable collateral. Schedules are versioned — changes take effect for new repos only, not existing positions.

Real-time inventory view. Because all collateral positions are on-chain, a collateral manager can query the total inventory pledged across all repo contracts, the remaining maturity of each pledge, and the aggregate haircut exposure — without relying on a custodian's end-of-day report.

Haircut enforcement. The repo contract enforces the agreed haircut at initiation. If the collateral's on-chain price (from a registered price oracle) implies a collateral value below the required haircut threshold, the contract rejects the proposed terms.

Margin and Variation Calls

For term repos (overnight or longer), margin calls can be automated via the repo contract's variation margin module:

• A price oracle publishes the mark-to-market value of the collateral at configurable intervals.

• If the collateral value falls below the margin threshold, the contract emits a margin call event and opens a top-up window.

• If the borrower does not top up within the window, the contract triggers a default settlement: collateral is liquidated to the lender and the repo is closed.

For intraday repos, the maturity is within the day and margin call risk is minimal — but the module is available for configurations that require it.

Compliance

All repo participants must hold valid OnchainID claims before engaging with any repo contract:

Claim	Purpose
KYC/AML	Standard identity verification
Eligible Counterparty	Confirms the party is classified as a professional / eligible counterparty under applicable regulation
Jurisdiction	Borrower and lender must be in jurisdictions permitted under the repo contract's country policy
Collateral Eligibility	The collateral token must pass the ERC-3643 compliance modules of the bond token contract

Compliance checks run at initiation and, for term repos, can be re-checked at maturity to handle any intervening change in status.

ZK State Verification

Repo positions generate QMTree proofs submitted to Ethereum, enabling:

• Regulators to verify aggregate repo exposure without accessing individual position details.

• Prime brokers to verify a counterparty's collateral inventory without the counterparty revealing the full composition.

• Risk systems to receive verified position updates without relying on the counterparty's self-reporting.