4. Settlement

Settlement is mark-to-market.

Settlement P&L for any band position is calculated as:

Net Bands Payout = Intrinsic Value + Residual Value

• Intrinsic Value: payout from the in-the-money portion of the option / vertical spread

• Extrinsic Value: value of the out-of-money portion of the option / vertical spread.

For a detailed breakdown of how intrinsic and extrinsic value change across all price zones, see Annexure A: Band Value Behaviour.

Liquidation

A trader’s position is subject to liquidation if account leverage reaches 40x (i.e. margin falls to 2.5% of notional). At liquidation, the protocol closes the position and the pool absorbs any remaining equity.

Temporal’s band structure is specifically designed to reduce the probability of reaching this threshold by reshaping the P&L curve so positions survive more adverse price movement before reaching the liquidation floor.