# Settlement Reference

```
If PnL ≥ 0:
    Amount Returned = Borrowed + PnL

If PnL < 0:
    Amount Returned = Borrowed - |PnL|
```

Settlement call:

```
settle(int256 pnl)
```

### Settlement Checklist

Before calling `settle()`:

* [ ] Epoch duration has elapsed
* [ ] All contract interactions must use **base units (raw token amounts)**.
* [ ] Total borrowed amount is accurately tracked (If borrowed)
* [ ] Token approval is set for the vault contract

***

### Settlement Scenarios

#### 1. Borrowed Capital with Profit

| Parameter | Value   |
| --------- | ------- |
| Borrowed  | 8 USDC  |
| PnL       | +1 USDC |

**Conversion (USDC, 6 decimals):**

* Borrowed = `8,000,000`
* PnL = `1,000,000`
* Return = `9,000,000`

**Execution**

Transfer:

```
9000000
```

Call:

```
settle(1000000)
```

***

#### 2. Borrowed Capital with Loss

| Parameter | Value   |
| --------- | ------- |
| Borrowed  | 8 USDC  |
| PnL       | -2 USDC |

**Conversion (USDC, 6 decimals):**

* Borrowed = `8,000,000`
* PnL = `-2,000,000`
* Return = `6,000,000`

**Execution**

Transfer:

```
6000000
```

Call:

```
settle(-2000000)
```

{% hint style="warning" %}
Losses are reflected by returning less capital. No additional capital injection is required.
{% endhint %}

***

#### 3. No Borrowing with Profit

| Parameter | Value   |
| --------- | ------- |
| Borrowed  | 0       |
| PnL       | +1 USDC |

**Conversion (USDC, 6 decimals):**

* Borrowed = `0`
* PnL = `1,000,000`
* Return = `1,000,000`

**Execution**

Transfer:

```
1000000
```

Call:

```
settle(1000000)
```

***

#### 4. No Borrowing with Loss

This scenario is **not permitted as-is**.

If no capital was borrowed during the epoch, the trader cannot settle with a negative PnL directly, since the contract enforces that losses cannot exceed borrowed capital.

{% hint style="danger" %}
A negative `pnl` is only valid if there is sufficient recorded borrowed balance.
{% endhint %}

**Resolution**

If the strategy resulted in a loss but no capital had previously been borrowed, the trader must first borrow the required amount from the vault, then settle using the negative PnL value.

**Example**

| Parameter        | Value   |
| ---------------- | ------- |
| Initial Borrowed | 0 USDC  |
| Realized PnL     | -1 USDC |

Since `Borrowed = 0`, calling `settle(-1 USDC)` directly is invalid.

**Required process:**

1. Borrow the required amount
2. Approve the vault
3. Call settlement with the negative PnL

**Conversion (USDC, 6 decimals):**

* Borrow = `1000000`
* PnL = `-1000000`
* Return amount at settlement = `0`

**Execution**

Borrow:

```
borrow(1000000)
```

Approve:

```
approve(vault, 0)
```

Call:

```
settle(-1000000)
```

***

### Summary

* Settlement enforces final PnL onchain
* Return amount must reflect borrowed capital ± PnL
* All values must be provided in base units
* `settle(pnl)` finalizes the epoch


---

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