Only take one hit—why can a bad debt end up being sliced twice with a dull blade?
I reviewed the liquidation rules for @TermMax , and there’s a detail that’s easy to get hidden by a “fixed interest rate” narrative: in a single liquidation, no more than 50% of the position can be liquidated. If the price continues to fall after the 2-hour window, the same default has to trigger a second round of liquidation.
This creates a problem of cumulative punishment. TermMax charges a 10% penalty each time it liquidates; completing it in two rounds means the effective total penalty comes to nearly 19%. Add in the redemption fee and mark-to-market volatility of the collateral after physical delivery, and the final recovery rate may be far lower than the collateralization rate initially locked in.
The 50% cap is meant to prevent a single trade from dumping the market, and the 2-hour window is a buffer for borrowers to add more collateral. But during consecutive price declines, the remaining exposure still absorbs the drawdown. Liquidators also face reduced incentive—since they can only take half—so participation drops. When the second round triggers, the collateral may already have fallen below the debt’s face value, forcing the lender to accept physical delivery—possibly taking back WETH that may still be falling.
What you see on the page is the fixed APY. What actually happens after a default involves multi-round penalty stacking. You think you’re lending USDC zero-coupon debt, but in extreme market conditions it turns into a double bet against both liquidation liquidity and the collateral asset’s ongoing price decline.
If TMX wants to capture value from protocol usage in the future, it can’t just make the interest rate look good—it also needs to clearly explain the liquidation rounds and cumulative costs under worst-case scenarios. The community at #TermMax should not just watch the highest fixed APY, but the average number of liquidations after a real default and the overall recovery rate.
Because the current mainnet hasn’t been running for long, there’s hardly any publicly available data on multi-round liquidation cases. I won’t claim the mechanism is unfair in advance. I’ll wait until real extreme market conditions occur, and then see who is actually protected when the 50% cap meets liquidity exhaustion—before making any judgment. $BTC
I reviewed the liquidation rules for @TermMax , and there’s a detail that’s easy to get hidden by a “fixed interest rate” narrative: in a single liquidation, no more than 50% of the position can be liquidated. If the price continues to fall after the 2-hour window, the same default has to trigger a second round of liquidation.
This creates a problem of cumulative punishment. TermMax charges a 10% penalty each time it liquidates; completing it in two rounds means the effective total penalty comes to nearly 19%. Add in the redemption fee and mark-to-market volatility of the collateral after physical delivery, and the final recovery rate may be far lower than the collateralization rate initially locked in.
The 50% cap is meant to prevent a single trade from dumping the market, and the 2-hour window is a buffer for borrowers to add more collateral. But during consecutive price declines, the remaining exposure still absorbs the drawdown. Liquidators also face reduced incentive—since they can only take half—so participation drops. When the second round triggers, the collateral may already have fallen below the debt’s face value, forcing the lender to accept physical delivery—possibly taking back WETH that may still be falling.
What you see on the page is the fixed APY. What actually happens after a default involves multi-round penalty stacking. You think you’re lending USDC zero-coupon debt, but in extreme market conditions it turns into a double bet against both liquidation liquidity and the collateral asset’s ongoing price decline.
If TMX wants to capture value from protocol usage in the future, it can’t just make the interest rate look good—it also needs to clearly explain the liquidation rounds and cumulative costs under worst-case scenarios. The community at #TermMax should not just watch the highest fixed APY, but the average number of liquidations after a real default and the overall recovery rate.
Because the current mainnet hasn’t been running for long, there’s hardly any publicly available data on multi-round liquidation cases. I won’t claim the mechanism is unfair in advance. I’ll wait until real extreme market conditions occur, and then see who is actually protected when the 50% cap meets liquidity exhaustion—before making any judgment. $BTC