After finishing the liquidation documents for @TermMax , a design made me rethink something: loans that are not repaid on time will enter a two-hour open liquidation window. When borrowers see “two hours,” their first reaction is, “I still have time to make amends.” But when you look at the fine allocation and the staged liquidation rules together, those two hours feel less like reprieve and more like a countdown—the end point of the countdown isn’t the borrower’s chance to breathe, but the signal for liquidators to step in.
The fine allocation is the first signal. When liquidation is triggered, the system charges the borrower a penalty equal to 10% of the liquidation debt amount: 5% goes to the liquidator and 5% goes into the protocol reserve. The essence of this allocation is to set up compensation for the liquidator—whoever acts first gets the money. From the very beginning, the beneficiary of the window is the liquidator, not the borrower.
What liquidators do depends on the market depth of the collateral. For assets with good depth, liquidators settle the accounts and find it profitable, so they’ll rush in. For assets with poor depth, after slippage costs wipe out the profit, the penalty no longer feels attractive—then the window becomes an empty period with no takers. The borrower has no control over this.
The staged liquidation rules amplify this uncertainty. If the outstanding debt amount of the loan exceeds $10,000, then in each round the liquidator can liquidate at most 50% of the debt amount. The positions not fully liquidated in the first round roll into the second and third rounds, with the collateral price still fluctuating between rounds. HTX’s analysis also confirms this: for large positions, at most 50% of the debt can be liquidated in a single round. Reducing the cost of each single shock effectively extends the total duration of exposure.
Hindenrank’s risk rating for TermMax is C+ (40/100), noting “multiple novel mechanisms and significant interaction risks.” The two-hour window protection was never meant to protect the borrower’s money; it is meant to keep the protocol’s own liquidation process from being crushed in one go. Borrowers think they have a window to add collateral, but what truly determines whether these two hours are enough is whether liquidators are willing to come—and the borrower has absolutely no control over that.
In summary, I believe TermMax’s two-hour liquidation window is not, in essence, a “grace period” for borrowers—it’s an “incentive window” designed for liquidators. The more liquidation rounds there are, the more the cost of “reducing the shock” approaches the idea of “dragging time.” Whoever the window is left to has already been answered by the early fine allocation.
#termmax
The fine allocation is the first signal. When liquidation is triggered, the system charges the borrower a penalty equal to 10% of the liquidation debt amount: 5% goes to the liquidator and 5% goes into the protocol reserve. The essence of this allocation is to set up compensation for the liquidator—whoever acts first gets the money. From the very beginning, the beneficiary of the window is the liquidator, not the borrower.
What liquidators do depends on the market depth of the collateral. For assets with good depth, liquidators settle the accounts and find it profitable, so they’ll rush in. For assets with poor depth, after slippage costs wipe out the profit, the penalty no longer feels attractive—then the window becomes an empty period with no takers. The borrower has no control over this.
The staged liquidation rules amplify this uncertainty. If the outstanding debt amount of the loan exceeds $10,000, then in each round the liquidator can liquidate at most 50% of the debt amount. The positions not fully liquidated in the first round roll into the second and third rounds, with the collateral price still fluctuating between rounds. HTX’s analysis also confirms this: for large positions, at most 50% of the debt can be liquidated in a single round. Reducing the cost of each single shock effectively extends the total duration of exposure.
Hindenrank’s risk rating for TermMax is C+ (40/100), noting “multiple novel mechanisms and significant interaction risks.” The two-hour window protection was never meant to protect the borrower’s money; it is meant to keep the protocol’s own liquidation process from being crushed in one go. Borrowers think they have a window to add collateral, but what truly determines whether these two hours are enough is whether liquidators are willing to come—and the borrower has absolutely no control over that.
In summary, I believe TermMax’s two-hour liquidation window is not, in essence, a “grace period” for borrowers—it’s an “incentive window” designed for liquidators. The more liquidation rounds there are, the more the cost of “reducing the shock” approaches the idea of “dragging time.” Whoever the window is left to has already been answered by the early fine allocation.
#termmax
