Leverage

Leverage lets a factory owner scale a live factory with borrowed GARD from the vault.

It is the protocol’s explicit risk-up, upside-up mechanic.

Leverage tiers

Midgard currently exposes three leverage tiers:

Tier	Interest rate
2x	2% APR
5x	4% APR
10x	7% APR

What leverage does

When a factory takes leverage:

• the borrowed GARD is added directly to factory stake
• the factory’s daily burn is scaled by the leverage tier
• the protocol ensures the leveraged factory can immediately support at least one leveraged challenge payout

This is important. Leverage is not a wallet loan. It is capital routed straight into the factory position.

One active loan per factory

Each factory can only have one active loan at a time.

That keeps the credit model simple and makes liquidation reasoning much clearer.

Health factor

The vault measures loan safety through a health factor:

factory claimable value / loan debt

Liquidation triggers when health falls below:

• 1.10x

The liquidation premium target used in coverage checks is:

• 1.05x debt

What counts as factory collateral

For leverage purposes, the factory’s claimable value is:

• remaining stake after effective burn
• plus available inflation after paid and reserved amounts

That means leverage health is tied directly to the same value the factory could actually settle with.

Liquidation

If a leveraged factory becomes unhealthy enough, the vault can liquidate it.

Important:

• liquidation means full factory forfeiture
• the vault receives the released factory value
• the loan is closed out

This is a deliberate design choice. Midgard does not treat leverage as a soft convenience feature. It is a high-upside path that can wipe the entire factory.

Why liquidation can happen

Liquidation pressure can come from:

• winning challenges
• too much value reserved for pending challenges
• accrued loan interest over time
• poor factory management

The contract prevents new challenge creation if it would immediately break liquidation coverage, but it does not remove risk from the position. Settlement outcomes can still push health below the threshold.

Why leverage exists

Leverage gives strong factory operators a way to scale beyond their base stake.

That is valuable because:

• higher stake supports a larger position
• higher burn creates larger challenge tickets
• a larger factory can generate more meaningful income

But the downside stays very clear:

• more output
• more risk
• full factory loss if the position gets liquidated