#termmax @TermMax .........What happens to lenders when liquidation can't fully recover a TermMax loan?
I've been thinking about this while looking at @TermMax .
In most lending systems, liquidation is the point where collateral gets sold to cover the debt.
But what happens when the liquidation window ends and the loan still isn't fully recovered?
That's where TermMax's Physical Delivery mechanism becomes interesting.
If liquidation only recovers part of the outstanding debt, the process can automatically move into physical delivery.
Instead of leaving FT holders with an unresolved claim, the redemption pool can contain both the underlying debt tokens and the collateral tokens.
FT holders then receive a proportional share of that pool based on their FT ownership relative to the total outstanding FT.
So the trade-off is pretty clear:
Full liquidation = debt recovered through collateral sales.
Incomplete liquidation = remaining assets delivered proportionally to FT holders.
It doesn't remove loss risk.
But it changes what happens when the normal liquidation process isn't enough to close the position.
Would you prefer:
1. Automatic physical delivery of remaining assets
2. A liquidation-only model
3. It depends on the collateral type?
I've been thinking about this while looking at @TermMax .
In most lending systems, liquidation is the point where collateral gets sold to cover the debt.
But what happens when the liquidation window ends and the loan still isn't fully recovered?
That's where TermMax's Physical Delivery mechanism becomes interesting.
If liquidation only recovers part of the outstanding debt, the process can automatically move into physical delivery.
Instead of leaving FT holders with an unresolved claim, the redemption pool can contain both the underlying debt tokens and the collateral tokens.
FT holders then receive a proportional share of that pool based on their FT ownership relative to the total outstanding FT.
So the trade-off is pretty clear:
Full liquidation = debt recovered through collateral sales.
Incomplete liquidation = remaining assets delivered proportionally to FT holders.
It doesn't remove loss risk.
But it changes what happens when the normal liquidation process isn't enough to close the position.
Would you prefer:
1. Automatic physical delivery of remaining assets
2. A liquidation-only model
3. It depends on the collateral type?