Leverage Multiplier

When buying longZCB, a manager’s leverage multiplier, which scales with his reputation, determines how capital efficient his investment would be. It would also determine how much weight he has when the decisions are aggregated(as the total amount of one’s longZCB exposure determines one’s weight). Buying longZCB with leverage is akin to taking a margin-long position.

As an example, for a leverage ratio of 2, a manager would buy 100 underlying worth of longZCB with 100/2 = 50 underlying. The extra capital (100-100/2 = 50) is borrowed from the parent vault. He would then pay back the debt to the vault whenever he closes his levered longZCB position.

In this instance, the manager would have the same decision weight as purchasing with 100 underlying with just 50.

If the longZCB with no leverage makes a y percent return, the manager will have made x*y percent return.

Managers would essentially borrow from the vault with 0 cost of capital.

Liquidations

A typical margin position will get liquidated if the unrealized loss exceeds the position's margin. In RAMM, managers will not get liquidated. Instead, their loss will be only realized when either they try to redeem their position or when the instrument is resolved(where resolve function is triggered by the validators). This is economically viable as the profit generated by the instrument is shared with the vault holders.