#termmax @TermMax
I was going through how you actually repay a loan on TermMax expecting the boring answer pay back what you borrowed. The second repayment option made me stop and read it twice because it means you can settle a debt for less than its face value.
Heres the setup When you borrow, you mint Fixed Rate Tokens (FTs) each one a promise to repay 1 USDC at maturity. Say you owe 800 USDC thats 800 FTs.
The obvious way to repay is to just hand back 800 USDC. Done.
But theres a second way. Those same FTs trade on the open market at a discount before maturity say 0.80 each. So you can buy 800 FTs off the market for 640 USDC return them to close your loan, and unlock your collateral Youve settled an 800 USDC debt for 640.
The first time i read that it sounded like a free lunch Its not and understanding why is the actually interesting part.
That 0.80 price isnt a gift. Its the market pricing in time and risk the FT is worth less than 1.00 today precisely because youre paid 1.00 only later and theres some chance the debt isnt fully repaid. As maturity approaches that discount shrinks toward zero so the closer you are to the deadline the less this saves you Buy an FT the day before maturity and youll pay almost the full 1.00.
So its not really pay less than you owe. Its your debt in todays money is already worth less than its face value and the protocol lets you settle at todays price instead of the future one. Which is honestly how bonds have always worked you can retire debt by buying it back in the market.
The thing im genuinely unsure about can a discount like this survive its own popularity? The more people rush to buy FTs back to repay cheaply, the more that buying pushes prices toward 1.00 and quietly erases the very discount they came for. @TermMax
#TermMax $RED $GPS $EDEN
I was going through how you actually repay a loan on TermMax expecting the boring answer pay back what you borrowed. The second repayment option made me stop and read it twice because it means you can settle a debt for less than its face value.
Heres the setup When you borrow, you mint Fixed Rate Tokens (FTs) each one a promise to repay 1 USDC at maturity. Say you owe 800 USDC thats 800 FTs.
The obvious way to repay is to just hand back 800 USDC. Done.
But theres a second way. Those same FTs trade on the open market at a discount before maturity say 0.80 each. So you can buy 800 FTs off the market for 640 USDC return them to close your loan, and unlock your collateral Youve settled an 800 USDC debt for 640.
The first time i read that it sounded like a free lunch Its not and understanding why is the actually interesting part.
That 0.80 price isnt a gift. Its the market pricing in time and risk the FT is worth less than 1.00 today precisely because youre paid 1.00 only later and theres some chance the debt isnt fully repaid. As maturity approaches that discount shrinks toward zero so the closer you are to the deadline the less this saves you Buy an FT the day before maturity and youll pay almost the full 1.00.
So its not really pay less than you owe. Its your debt in todays money is already worth less than its face value and the protocol lets you settle at todays price instead of the future one. Which is honestly how bonds have always worked you can retire debt by buying it back in the market.
The thing im genuinely unsure about can a discount like this survive its own popularity? The more people rush to buy FTs back to repay cheaply, the more that buying pushes prices toward 1.00 and quietly erases the very discount they came for. @TermMax
#TermMax $RED $GPS $EDEN
