When Valuable Collateral Isn’t a Liquid Asset:

I used to think collateral was mainly about one thing: how much is it worth?

But while reading @TermMax ’s docs, I started looking at another question:

What happens when you actually need to liquidate it?

That’s where Physical Delivery Liquidation caught my attention.

On paper, collateral can be liquidated. But during a sudden crash, liquidity can disappear, and selling it normally can become difficult.

Black Thursday in March 2020 showed how quickly this can happen. ETH crashed, Ethereum became congested, and MakerDAO’s liquidation process came under serious stress.

TermMax has an interesting alternative: when standard liquidation becomes impractical because of extreme volatility or insufficient liquidity, the collateral can be transferred directly to the lender.

I’ve felt a smaller version of this while trading. I bought a coin around 100 USDT and planned to exit at 90 USDT. But volume was thin. When the sale was finally executed, the price was already 85 USDT.

Having an exit price is one thing. Actually, getting that price is another.

For RWAs and lower liquidity assets, this connection becomes even more interesting because TermMax links Physical Delivery Liquidation with accepting these assets as collateral.

Collateral value matters. Liquidity matters more.

#termmax $TMX

During a market crash, what worries you more?