#termmax @TermMax
What happens in TermMax if the collateral value drops sharply? The developers solved this problem very elegantly by implementing a physical collateral delivery mechanism- Physical Delivery. Let’s break down how this works using a simple example with concrete numbers. Imagine two market participants: Alex the borrower and Steve the lender.
Alex's collateral is 1 ETH, valued at $2000 at the time of opening the loan. Against his ether, Alex issues 1000 FT, which equals a $1000 USDC debt
Steve buys these 1000 FT at a discount for $800 USDC.Alex receives $800 in cash on hand, while Steve expects to collect his $1000 USDC on the maturity date. Earning $200 or a 25% fixed profit.
But what happens if the ETH market goes down?
Scenario 1. Moderate drop, ETH falls to $1400 The price of ether has decreased, but the collateral value of $1400 still exceeds the debt amount of $1000. The loan remains safe. When the maturity date arrives, Alex can pay $1000 USDC and retrieve his 1 ETH. If Alex refuses to repay the debt, the protocol closes the loan and Steve receives his fixed $1000 USDC. Spent $800, and received $1000.
Scenario 2. Critical crash, ETH falls to $1100. The collateral price has fallen below the safe liquidation level, creating a risk of default. The smart contract does not sell ETH on the exchange at all. Instead, the protocol simply seizes 1 ETH from Alex and transfers it directly to Steve.
Math for both participants during the crash:
Alex the borrower loses his 1 ETH, but keeps the previously received $800 USDC and owes nothing more to the protocol.
Steve the lender invested $800 USDC, and as a result of the default received 1 ETH, which even after the crash is worth $1100. In the end, Steve still remains in the green by +$300. Because $1100 in assets minus $800 invested, although instead of stablecoins he now holds ether.He can sell it himself or wait for the market to recover.
Thus, the Physical Delivery in TermMax eliminates the risk of bad debt and protects lenders from exchange oracle failures or liquidity shortages on DEXs.
What happens in TermMax if the collateral value drops sharply? The developers solved this problem very elegantly by implementing a physical collateral delivery mechanism- Physical Delivery. Let’s break down how this works using a simple example with concrete numbers. Imagine two market participants: Alex the borrower and Steve the lender.
Alex's collateral is 1 ETH, valued at $2000 at the time of opening the loan. Against his ether, Alex issues 1000 FT, which equals a $1000 USDC debt
Steve buys these 1000 FT at a discount for $800 USDC.Alex receives $800 in cash on hand, while Steve expects to collect his $1000 USDC on the maturity date. Earning $200 or a 25% fixed profit.
But what happens if the ETH market goes down?
Scenario 1. Moderate drop, ETH falls to $1400 The price of ether has decreased, but the collateral value of $1400 still exceeds the debt amount of $1000. The loan remains safe. When the maturity date arrives, Alex can pay $1000 USDC and retrieve his 1 ETH. If Alex refuses to repay the debt, the protocol closes the loan and Steve receives his fixed $1000 USDC. Spent $800, and received $1000.
Scenario 2. Critical crash, ETH falls to $1100. The collateral price has fallen below the safe liquidation level, creating a risk of default. The smart contract does not sell ETH on the exchange at all. Instead, the protocol simply seizes 1 ETH from Alex and transfers it directly to Steve.
Math for both participants during the crash:
Alex the borrower loses his 1 ETH, but keeps the previously received $800 USDC and owes nothing more to the protocol.
Steve the lender invested $800 USDC, and as a result of the default received 1 ETH, which even after the crash is worth $1100. In the end, Steve still remains in the green by +$300. Because $1100 in assets minus $800 invested, although instead of stablecoins he now holds ether.He can sell it himself or wait for the market to recover.
Thus, the Physical Delivery in TermMax eliminates the risk of bad debt and protects lenders from exchange oracle failures or liquidity shortages on DEXs.
