modeled a liquidation on TermMax vs a normal lending protocol, because "physical delivery" sounded like a nice-to-have until I ran the numbers.
say a $10,000 collateral position gets liquidated. On a typical protocol, that collateral gets dumped into a DEX — liquidation penalty plus slippage on a forced sale easily eats 5-10%, more if it's thin collateral like RWAs or LSTs. The lender doesn't get $10,000 back. They get whatever the market absorbed at, minus the rush.
TermMax skips the sale entirely. The lender just receives the $10,000 in collateral directly, at actual value, no forced-sale discount. The cost of bad debt isn't a slippage haircut, it's just holding an asset you didn't originally want.
that's the real reason they can list collateral most lending protocols avoid — Pendle PTs, LRTs, now tokenized stocks via Ondo. Those markets lack the DEX depth to absorb a forced liquidation cleanly, so any protocol relying on auto-sale structurally can't support them. Physical delivery sidesteps the liquidity requirement instead of solving it.
Tradeoff nobody mentions: lenders now need to actually want to hold whatever collateral they might end up with, not just cash.
#termmax @TermMax
say a $10,000 collateral position gets liquidated. On a typical protocol, that collateral gets dumped into a DEX — liquidation penalty plus slippage on a forced sale easily eats 5-10%, more if it's thin collateral like RWAs or LSTs. The lender doesn't get $10,000 back. They get whatever the market absorbed at, minus the rush.
TermMax skips the sale entirely. The lender just receives the $10,000 in collateral directly, at actual value, no forced-sale discount. The cost of bad debt isn't a slippage haircut, it's just holding an asset you didn't originally want.
that's the real reason they can list collateral most lending protocols avoid — Pendle PTs, LRTs, now tokenized stocks via Ondo. Those markets lack the DEX depth to absorb a forced liquidation cleanly, so any protocol relying on auto-sale structurally can't support them. Physical delivery sidesteps the liquidity requirement instead of solving it.
Tradeoff nobody mentions: lenders now need to actually want to hold whatever collateral they might end up with, not just cash.
#termmax @TermMax