Went back through TermMax's liquidation docs specifically to trace where the penalty money actually ends up.
The number is simple: 10% of the liquidated debt value, pulled from the borrower's own collateral whenever liquidation fires. What's less obvious is the split — not one lump sum to one party. 5% goes to the liquidator as their reward for executing the liquidation. The other 5% routes directly to the protocol's own reserve.
What changed for me was realizing this isn't just a punishment fee, it's a two-part incentive structure the docs frame explicitly around protocol stability — designed to maintain the required LTV on loans while giving liquidators a real reason to act fast. The formula confirms the priority order too: liquidated collateral first covers the liquidator reward, then the remainder applies to the protocol penalty, all explicitly capped to the borrower's actual position — meaning the penalty mathematically can't exceed what that borrower's own collateral can cover, no matter how the formula runs.
Worth flagging: the docs specify the split and the cap clearly, but don't state what the reserve is spent on once it accumulates, or under what conditions it gets drawn down.
Next thing I'd check: how large that reserve has actually grown relative to total liquidation volume so far.
#termmax @TermMax $BTW
$RICE
$GPS
The number is simple: 10% of the liquidated debt value, pulled from the borrower's own collateral whenever liquidation fires. What's less obvious is the split — not one lump sum to one party. 5% goes to the liquidator as their reward for executing the liquidation. The other 5% routes directly to the protocol's own reserve.
What changed for me was realizing this isn't just a punishment fee, it's a two-part incentive structure the docs frame explicitly around protocol stability — designed to maintain the required LTV on loans while giving liquidators a real reason to act fast. The formula confirms the priority order too: liquidated collateral first covers the liquidator reward, then the remainder applies to the protocol penalty, all explicitly capped to the borrower's actual position — meaning the penalty mathematically can't exceed what that borrower's own collateral can cover, no matter how the formula runs.
Worth flagging: the docs specify the split and the cap clearly, but don't state what the reserve is spent on once it accumulates, or under what conditions it gets drawn down.
Next thing I'd check: how large that reserve has actually grown relative to total liquidation volume so far.
#termmax @TermMax $BTW
$RICE
$GPS