Scenarios

These use simple, illustrative numbers. Real outcomes depend on markets, strikes and timing.

Borrowers

Steady market (typical): Alice deposits 100 NVDA at $120 ($12,000) and borrows $4,000, about 33% LTV, in the safe zone. NVDA drifts up over four cycles and every call expires unused. Alice repays whenever she likes, withdraws her tokens after a cycle ends, and keeps all of the gain. She paid no interest.
Strong rally (uncommon): Bob's AAPL rallies past the strike in one cycle and the calls are exercised. Spout buys the AAPL shares back in its brokerage account with the strike proceeds, so Bob's token count falls slightly. Bob kept the whole rise up to the strike and gave up the rest of that cycle's move. His loan is unchanged and his LTV is lower than before the rally.
Gradual decline (risk event): Carol borrows 30% against GOOG. GOOG falls 25% over a month. Her LTV rises to 40%, into the warning zone, but below GOOG's 55.6% threshold. She adds collateral and is back in the safe zone. Nothing was sold.
Sharp fall (risk event): Dave borrows the full 50% against NVDA. NVDA falls 16% and Dave's LTV passes NVDA's 58.8% threshold. Spout sells just enough to bring him back to about 50%, about 23% of his tokens, and the 8.8% penalty applies to what is sold. Dave keeps about 77% of his position.

Steady yield (typical): Eve deposits $50,000 in Senior. Idle cash earns Treasury bill yield, and the pool also earns premium from calls written on borrowers' collateral. Her share value rises as yield accrues. She can withdraw instantly from the reserve or join the queue to avoid the haircut.
High volatility (favorable): A shock lifts option prices across the market. Premiums rise, the excess above Senior's 7% grows, and Junior's yield rises fastest. Option sellers tend to earn more when markets are fearful.
A quiet stretch (unfavorable for Junior): Markets are calm for weeks and premiums shrink. The pool earns less than Senior's 7% priority. Senior takes all the income and Junior earns nothing for those weeks.
A loss event (edge case): A stock gaps down overnight and a liquidation sale falls short of the loan by $80,000. The Insurance Fund, which holds more than that, covers it. Lender balances are untouched, and the fund refills from future protocol fees and penalties.