The Offchain Layer
The offchain layer includes borrower entities, financing documents, liens, bank and escrow accounts, insurance, data-center arrangements and physical GPU servers. This is where real-world enforceability is established.
The Onchain Layer
The onchain layer records positions, balances, payment state and tokenized representations. Smart contracts can automate predefined payment and lifecycle actions while preserving public visibility.
Why Both Layers Matter
Physical assets cannot be enforced solely through smart contracts, while purely offchain lending lacks the transparency and composability that onchain markets provide. The design uses each layer for what it does best.
Default & Enforcement
If a default occurs, legal remedies and collateral enforcement happen offchain while the onchain record can reflect the changed loan state and restrict protocol actions according to the system rules.