# Protocol Capitalization

#### Reserve Buffer (`ReserveBuffer`)

Receives:

* carry charges (via Fee Accumulator + Ledger)
* liquidation penalties
* peg rail fees

Holds:

* rwaUSD
* reference stablecoins (and possibly other high-quality reserves)

#### Deficit recording (`DeficitRecorder`)

If an unwind auction fails to raise enough to cover liability:

* Ledger records explicit deficit:
  * `badDebt += deficitAmount`

Deficits are not silently socialized. They are first covered by reserves.

#### Recapitalization (`RecapMechanism`)

If reserves are insufficient:

* protocol triggers a recap procedure that sells a recap asset for rwaUSD/stables
* proceeds are used to eliminate recorded deficits

The recap asset design (governance token, bond token, or similar) is a separate specification, but the architecture requires:

* permissioned minting only under deficit conditions
* transparent auction/sale mechanism
* timelocked governance control