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# Pool Accounting

## Total Pool Value (totalAssets)

Total pool value is represented using totalAssets.
This value is calculated using the following equation:
where:
where:
where:
The relationship between the Pool, PoolManager, and LoanManagers regarding value representation is shown in the diagram below.

## Unrealized Losses

unrealizedLosses is an accounting variable that represents a "paper loss". The Pool Delegate and Governor both have the ability the "impair" a loan, setting the payment due date to the current timestamp (putting the loan into arrears) and representing a paper loss in the pool. unrealizedLosses is also incremented during an active collateral liquidation in a Loan. unrealizedLosses is used to prevent large liquidity events in situations where it is public knowledge that a Pool with incur a loss in the future.
In the case that $unrealizedLosses \gt 0$, there are two exchange rates that are maintained, one for deposits and one for withdrawals. This is to prevent malicious depositors from taking advantage of a situation where they know they paper loss will be removed. Consider a situation where there is a single loan outstanding for $900k with$10k of outstanding interest, and there is 100k of cash in the pool. The totalSupply of LP tokens is 1m. In this situation, the effective exchange rate is:
After impairing the loan, unrealizedLosses gets set to 910k. Now, with unrealizedLosses considered, the exchange rate becomes:
Without the two exchange rate model, a depositor could deposit $1m at a 0.1 exchange rate and get 10m shares. Once unrealizedLosses was removed, their shares would be worth$10.1m.
For this reason, two exchange rates are maintained during an unrealizedLosses scenario. This accomplishes two things:
1. 1.
Discourages withdrawals - LPs are incentivized to wait until the loan either:
2. 2.
Defaults - Cover and collateral will increase exchange rate
3. 3.
Pays back - The original exchange rate is restored.
4. 4.
Discourages deposits - During a scenario where a default is imminent, it is in future LPs' best interest to wait until the borrower either defaults or pays back their loan before entering the pool.