At first I assumed physical delivery was simply a backup when liquidation fails.
But the more I looked at TermMax’s design, the more specific it seemed.
After the liquidation window closes, the redemption pool can hold both the underlying tokens and the collateral, and FT holders redeem a proportional share of both.
What caught my attention is where this leaves the lender.
The system does not need to turn every unit of collateral back into cash before recovery can happen.
The trade-off is that the lender also inherits the problem the market could not solve:
they now hold an asset whose liquidity, price, and exit path may still be uncertain.
That feels less like removing liquidation risk and more like moving part of the burden from execution into ownership.
In a market built around highly liquid tokens, that distinction is easy to miss. As collateral becomes harder to trade, the role of the lender may quietly change.
Which leaves the quieter question:
is receiving the asset sometimes a more honest form of recovery than forcing a sale?

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