At first glance, fixed-rate lending seems straightforward. You know the rate, you know the maturity, and it can feel like the return is already determined. But looking deeper into @TermMax’s lending design made me realize that there is another important part. what happens when liquidation does not go as planned?
According to TermMax’s documentation, if a loan remains unpaid or is only partially liquidated after the liquidation period, the protocol can move toward a physical delivery process. In that situation, the redemption pool may include both the underlying asset and the borrower’s collateral.
For FT holders, the eventual distribution can therefore represent a proportional share of the assets available in that redemption pool.
That is an interesting change in perspective.
A fixed rate can define the expected lending terms, but it does not mean every possible outcome during extreme market conditions will look identical. If liquidation cannot be completed because available market liquidity is insufficient, the final asset composition received by lenders may depend on what remains inside the redemption pool.
So, I wouldn't describe physical delivery as simply “removing” liquidation risk. Instead, I see it as another mechanism for handling an incomplete liquidation scenario.
The real question for lenders is how this mechanism performs when markets become highly volatile and liquidity becomes scarce.
Does physical delivery provide a more practical path for recovering value during difficult liquidations? Or does it simply transform liquidation risk from a conventional market-execution problem into an asset-composition and recovery-value question?
For me, that is one of the more interesting aspects of @TermMax . Understanding the fixed rate is only the beginning. Understanding what can happen when the market moves far outside normal conditions may be just as important.
#TermMax #TMX
According to TermMax’s documentation, if a loan remains unpaid or is only partially liquidated after the liquidation period, the protocol can move toward a physical delivery process. In that situation, the redemption pool may include both the underlying asset and the borrower’s collateral.
For FT holders, the eventual distribution can therefore represent a proportional share of the assets available in that redemption pool.
That is an interesting change in perspective.
A fixed rate can define the expected lending terms, but it does not mean every possible outcome during extreme market conditions will look identical. If liquidation cannot be completed because available market liquidity is insufficient, the final asset composition received by lenders may depend on what remains inside the redemption pool.
So, I wouldn't describe physical delivery as simply “removing” liquidation risk. Instead, I see it as another mechanism for handling an incomplete liquidation scenario.
The real question for lenders is how this mechanism performs when markets become highly volatile and liquidity becomes scarce.
Does physical delivery provide a more practical path for recovering value during difficult liquidations? Or does it simply transform liquidation risk from a conventional market-execution problem into an asset-composition and recovery-value question?
For me, that is one of the more interesting aspects of @TermMax . Understanding the fixed rate is only the beginning. Understanding what can happen when the market moves far outside normal conditions may be just as important.
#TermMax #TMX