# Collateral requirement

Source: https://docs.settlemint.com/docs/user-guides/compliance/collateral
Configure the collateral compliance module so DALP checks the asset identity for
a valid collateral claim before minting more supply.




The collateral compliance module checks minting. When you enable the module for an asset, DALP looks for a valid collateral claim on the asset identity before allowing new supply.

That claim must be issued by a trusted issuer. It must also be unexpired and large enough to cover the required amount after the mint.

The module does not screen normal wallet-to-wallet transfers.

DALP also does not prove that money, securities, commodities, or other off-chain reserves exist. Reserve custody and attestations stay in the operator's evidence process.

DALP records the on-chain claim and enforces the configured minting check.

## How collateral validation works [#how-collateral-validation-works]

When you mint an asset with the module enabled, DALP applies this sequence:

<Mermaid
  chart="`flowchart TB
  MintReq(Mint request) --> CheckModule{Collateral module enabled?}
  CheckModule -->|No| AllowMint(Mint proceeds)
  CheckModule -->|Yes| CheckVerification{Valid collateral claim?}
  CheckVerification -->|No| RejectMint(Mint blocked)
  CheckVerification -->|Yes| CheckAmount{Claim covers post-mint supply?}
  CheckAmount -->|No| RejectMint
  CheckAmount -->|Yes| AllowMint

  style MintReq fill:#5fc9bf,stroke:#3a9d96,stroke-width:2px,color:#fff
  style CheckModule fill:#6ba4d4,stroke:#4a7ba8,stroke-width:2px,color:#fff
  style CheckVerification fill:#6ba4d4,stroke:#4a7ba8,stroke-width:2px,color:#fff
  style CheckAmount fill:#6ba4d4,stroke:#4a7ba8,stroke-width:2px,color:#fff
  style AllowMint fill:#5fc9bf,stroke:#3a9d96,stroke-width:2px,color:#fff
  style RejectMint fill:#b661d9,stroke:#8a3fb3,stroke-width:2px,color:#fff

`"
/>

The required amount is calculated from the post-mint total supply and the configured ratio in basis points. A 10,000 bps ratio means 100% backing. A 15,000 bps ratio means the claim must cover 150% of the post-mint supply.

## Roles and responsibilities [#roles-and-responsibilities]

| Role           | Responsibilities                                                                                               |
| -------------- | -------------------------------------------------------------------------------------------------------------- |
| Asset issuer   | Configures the module during asset creation, including the collateral ratio and trusted issuer setup.          |
| Trusted issuer | Issues and manages the collateral claim on the asset identity after reviewing the operator's reserve evidence. |

<Callout type="note" title="Separate configuration from proof">
  The asset issuer configures how DALP checks collateral during minting. The trusted issuer records the claim that DALP
  can validate on-chain. The documents and approvals behind that claim remain part of the operator's reserve process.
</Callout>

## Configuration parameters [#configuration-parameters]

| Parameter                  | Description                                                                                                                                  | Valid values             | Example                             |
| -------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----------------------------------- |
| Proof topic ID             | Verification topic DALP checks for the collateral claim. The platform provides the default collateral topic.                                 | System-provided topic ID | `collateral (ID: 565916...0528)`    |
| Collateral ratio           | Required backing ratio in basis points.                                                                                                      | `0` to `20000`           | `10000` for 100%, `15000` for 150%  |
| Additional trusted issuers | Issuer addresses accepted in addition to the platform registry. Use only when the issuer is not already registered for the collateral topic. | Wallet addresses         | Leave empty to use registry issuers |

<Callout type="info" title="Collateral ratios use basis points">
  `0` disables the minting check. `10000` requires 100% backing, so 1,000 minted units require a claim for at least
  1,000. `20000` is the maximum ratio and requires 200% backing.
</Callout>

## Configure collateral during asset creation [#configure-collateral-during-asset-creation]

<Steps>
  <Step>
    ### Open the asset designer [#open-the-asset-designer]

    Navigate to **Asset management > Asset designer** in the sidebar.
  </Step>

  <Step>
    ### Complete asset setup [#complete-asset-setup]

    Follow the wizard through asset class, type, and basic configuration. See [Create asset](/docs/user-guides/asset-creation/create-asset) for the full asset creation flow.
  </Step>

  <Step>
    ### Enable the module [#enable-the-module]

    On the compliance modules step, select **Collateral requirement**. This adds the minting check to the asset.

    ![Compliance module selection with Collateral requirement](/docs/compliance/collateral-requirement-module-select.webp)
  </Step>

  <Step>
    ### Configure the settings [#configure-the-settings]

    Set the collateral topic, ratio, and any additional trusted issuers.

    ![Collateral requirement configuration form](/docs/compliance/collateral-requirement-compliance-module.webp)
  </Step>

  <Step>
    ### Complete deployment [#complete-deployment]

    Review the configuration and deploy the asset. The module is active after deployment.
  </Step>
</Steps>

## Issue a collateral verification [#issue-a-collateral-verification]

After deployment, a trusted issuer must add a collateral claim to the asset identity before minting can pass the module check.

### Prerequisites [#prerequisites]

You need one of these permissions:

* trusted issuer authority for the collateral topic
* governance authority on the asset

### Claim fields [#claim-fields]

| Field  | Description                                                                                          | Format               |
| ------ | ---------------------------------------------------------------------------------------------------- | -------------------- |
| Amount | Total value covered by the claim. Use the same unit basis as the asset supply for the minting check. | Asset amount         |
| Expiry | Timestamp after which DALP stops treating the claim as valid.                                        | Future date and time |

<Steps>
  <Step>
    ### Navigate to Entities [#navigate-to-entities]

    Go to **Participants > Entities**. Assets appear here because each deployed asset has an on-chain identity. Entity addresses use the Web3 display format, so saved names and avatars can appear beside addresses.

    ![Entities page showing assets with on-chain identities](/docs/compliance/entities-sidebar.webp)
  </Step>

  <Step>
    ### Select the asset [#select-the-asset]

    Open the asset that needs the collateral claim.
  </Step>

  <Step>
    ### Open verification management [#open-verification-management]

    On the entity detail page, locate the **Identity and verifications** tile. Click **Manage verifications**.

    ![Entity detail page with Identity and verifications tile](/docs/compliance/entity-detail-identity-tile.webp)
  </Step>

  <Step>
    ### Add the claim [#add-the-claim]

    Click **Add verification**, then enter:

    1. **Verification topic**: `collateral`
    2. **Amount**: total covered amount, such as `10000`
    3. **Expiry Timestamp**: a future expiry date and time

    ![Collateral verification form with topic, amount, and expiry fields](/docs/compliance/collateral-form.webp)
  </Step>

  <Step>
    ### Submit the transaction [#submit-the-transaction]

    Review the confirmation screen, then click **Issue verification**.

    ![Confirmation before issuing verification](/docs/compliance/collateral-form-submit.webp)
  </Step>
</Steps>

<Callout type="warning" title="Renew before expiry">
  Expired collateral claims block future minting. Renew the claim before the expiry timestamp if the asset still needs
  to mint new supply.
</Callout>

## Example calculation [#example-calculation]

An asset uses a 150% collateral ratio and has a valid claim for 15,000 units.

| Operation    | Current supply | Mint amount | Post-mint supply | Required collateral | Available claim | Result  |
| ------------ | -------------: | ----------: | ---------------: | ------------------: | --------------: | ------- |
| Initial mint |              0 |       5,000 |            5,000 |               7,500 |          15,000 | Allowed |
| Second mint  |          5,000 |       3,000 |            8,000 |              12,000 |          15,000 | Allowed |
| Third mint   |          8,000 |       5,000 |           13,000 |              19,500 |          15,000 | Blocked |

The third mint fails because the post-mint supply would be 13,000 units. At a 150% ratio, required collateral is `13,000 × 1.5 = 19,500`. The current claim only covers 15,000, so the trusted issuer must issue a higher claim before the mint can be retried.

## Troubleshooting [#troubleshooting]

| Issue                                                | Cause                                                                                                   | Fix                                                                                                  |
| ---------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- |
| Minting is blocked with "Insufficient collateral"    | The claim amount is lower than the required amount.                                                     | Ask the trusted issuer to issue a higher claim, then retry the mint.                                 |
| Minting is blocked with "No collateral verification" | The asset identity has no valid collateral claim.                                                       | Ask the trusted issuer to add the claim on the asset identity.                                       |
| Minting is blocked with "Verification expired"       | The claim expiry timestamp has passed.                                                                  | Issue a new claim with a future expiry.                                                              |
| You cannot issue the claim                           | Your account is not a trusted issuer for the topic and does not have governance authority on the asset. | Ask an administrator to grant the required authority or have the designated issuer submit the claim. |

## Next steps [#next-steps]

* [Create asset](/docs/user-guides/asset-creation/create-asset)
* [Mint assets](/docs/user-guides/asset-servicing/mint-assets)
* [Configure equity collateral with the API](/docs/developer-guides/runbooks/configure-equity-collateral)
* [Trusted issuers registry](/docs/architecture/security/identity-compliance)