Physical delivery liquidation sounds like a clever fix — until you sit with it for a minute.
Here's the setup: @TermMax says if there is not enough market liquidity to liquidate a position properly, the lender just gets the collateral directly instead of eating a shortfall. No bad debt, no protocol insolvency, on paper. But I keep coming back to one question — what actually happened to the risk?
The lender signed up for a loan expecting cash back. Now they're holding an illiquid or volatile asset instead. That's not risk disappearing, that's risk changing hands. Ownership just shifted, not the danger itself.
This matters even more for TermMax specifically, since their whole pitch is supporting exotic, low-liquidity collateral and RWAs — think tokenized invoices or niche real-world assets that don't have deep order books to begin with. The more unusual the asset, the more likely this safety net just becomes a lender's liquidity problem.
I'm curious how this actually plays out in practice. Does the lender dump the asset at a discount to get liquid again? Or get stuck holding something they never wanted?
What do you think — smart design, or risk quietly relocated?
@TermMax #TermMax
Here's the setup: @TermMax says if there is not enough market liquidity to liquidate a position properly, the lender just gets the collateral directly instead of eating a shortfall. No bad debt, no protocol insolvency, on paper. But I keep coming back to one question — what actually happened to the risk?
The lender signed up for a loan expecting cash back. Now they're holding an illiquid or volatile asset instead. That's not risk disappearing, that's risk changing hands. Ownership just shifted, not the danger itself.
This matters even more for TermMax specifically, since their whole pitch is supporting exotic, low-liquidity collateral and RWAs — think tokenized invoices or niche real-world assets that don't have deep order books to begin with. The more unusual the asset, the more likely this safety net just becomes a lender's liquidity problem.
I'm curious how this actually plays out in practice. Does the lender dump the asset at a discount to get liquid again? Or get stuck holding something they never wanted?
What do you think — smart design, or risk quietly relocated?
@TermMax #TermMax