$ETH #termmax @TermMax Liquidations are turned into auctions; TermMax is a step slower before bad debt
Recently I took apart TermMax’s liquidation module and compared it with Aave and Morpho. TermMax didn’t go with the approach of executing immediately after a price trigger. Instead, it turns liquidation into a time-limited auction—once collateral enters the queue, it has to wait for bidding. My first thought was that efficiency would drop, but on closer inspection I realized it’s trying to reduce the intensity of forced selling. Aave’s liquidation path is short: after the liquidator strikes, the collateral could be wiped out within a single block, and the bad debt has to be covered by AAVE’s safety module. TermMax leaves some buffer on the price—two different risk philosophies.
On the testnet, I positioned myself close to the liquidation threshold. After my health factor fell below the line, it wasn’t immediately closed out. During the auction window, the price bounced back a bit, and the position automatically unwound its risk. That experience is rare on Aave; there a single needle usually pierces straight through. But from the liquidator’s perspective, it’s different: within the bid window, potential profit gets diluted by other bidders, and the reward you end up with might not cover gas costs. In extreme market conditions, the question of who’s willing to be the “bag holder” becomes a real problem.
In terms of parameters, TermMax’s auction window length and the initial discount determine market depth. If the window is too long, you miss the best moment to act; if it’s too short, you’re back to Aave-style instant liquidation. I guess the team wants borrowers to have time to top up or liquidate themselves—yes, that protects borrowers. But liquidators aren’t charities; if the spread isn’t enough, they’ll move to other protocols. If TERM could carve out a portion of the liquidation fees as an additional incentive, the situation could be different.
Morpho delegates more of the liquidation parameters to the underlying market, while TermMax keeps the auction cadence in the protocol itself—trading flexibility for stability. The issue lies in TERM’s capture ability: how much of the liquidation fee is actually allocated to stakers is not transparent. Incentives don’t reach the token layer; stakers can’t see the returns, so cold-start is hard. Put it plainly: TermMax is friendly to borrowers, but it’s not quite fair enough to liquidators and token holders. I hope it makes the reward distribution more aggressive—then the flywheel can truly start turning.
Recently I took apart TermMax’s liquidation module and compared it with Aave and Morpho. TermMax didn’t go with the approach of executing immediately after a price trigger. Instead, it turns liquidation into a time-limited auction—once collateral enters the queue, it has to wait for bidding. My first thought was that efficiency would drop, but on closer inspection I realized it’s trying to reduce the intensity of forced selling. Aave’s liquidation path is short: after the liquidator strikes, the collateral could be wiped out within a single block, and the bad debt has to be covered by AAVE’s safety module. TermMax leaves some buffer on the price—two different risk philosophies.
On the testnet, I positioned myself close to the liquidation threshold. After my health factor fell below the line, it wasn’t immediately closed out. During the auction window, the price bounced back a bit, and the position automatically unwound its risk. That experience is rare on Aave; there a single needle usually pierces straight through. But from the liquidator’s perspective, it’s different: within the bid window, potential profit gets diluted by other bidders, and the reward you end up with might not cover gas costs. In extreme market conditions, the question of who’s willing to be the “bag holder” becomes a real problem.
In terms of parameters, TermMax’s auction window length and the initial discount determine market depth. If the window is too long, you miss the best moment to act; if it’s too short, you’re back to Aave-style instant liquidation. I guess the team wants borrowers to have time to top up or liquidate themselves—yes, that protects borrowers. But liquidators aren’t charities; if the spread isn’t enough, they’ll move to other protocols. If TERM could carve out a portion of the liquidation fees as an additional incentive, the situation could be different.
Morpho delegates more of the liquidation parameters to the underlying market, while TermMax keeps the auction cadence in the protocol itself—trading flexibility for stability. The issue lies in TERM’s capture ability: how much of the liquidation fee is actually allocated to stakers is not transparent. Incentives don’t reach the token layer; stakers can’t see the returns, so cold-start is hard. Put it plainly: TermMax is friendly to borrowers, but it’s not quite fair enough to liquidators and token holders. I hope it makes the reward distribution more aggressive—then the flywheel can truly start turning.