#termmax I think TermMa’s design for the liquidation order is also quite interesting.
Many lending protocols sort positions by collateralization ratio from low to high during liquidation—whoever has the lowest collateralization ratio is liquidated first. This approach is fair, but it’s also easy to be exploited. Large players can watch the liquidation queue and specifically target the position with the lowest collateralization ratio, grabbing the fattiest slice before other liquidators get there.
But @TermMax does things differently. Its liquidation window is public—anyone can participate—but the liquidation order isn’t queued by collateralization ratio; it’s prioritized by time. Whoever initiates the liquidation request first gets processed first.
The logic behind this design is: liquidation is a public service, not an arbitrage competition. If everyone rushes to liquidate the position with the lowest collateralization ratio, then other positions that are also close to liquidation may end up being neglected, which could lead to more bad debts. By processing on a first-come, first-served basis, liquidators get spread across different positions, and overall liquidation efficiency is actually higher.
Another detail is the rule for partial liquidation. If a debt is relatively large, a liquidator can choose to liquidate only part of it, rather than everything. For example, with a $100,000 debt, the liquidator could first liquidate $50,000 and take the corresponding collateral. The remaining $50,000 stays on the books; if the price continues to fall, it can be liquidated again in the next round.
This partial liquidation mechanism gives borrowers a buffer. If your position is partially liquidated, you still have a chance to add collateral or repay part of the debt to save the remaining position. But if you’re fully liquidated in one go, you lose that position entirely.
Of course, partial liquidation also means the liquidator’s returns are diluted. But TermMax’s documentation argues that a healthy lending market shouldn’t encourage liquidators to gamble on a borrower’s liquidation cascade. Instead, liquidation should function as a steady risk-release mechanism.$ETH
Many lending protocols sort positions by collateralization ratio from low to high during liquidation—whoever has the lowest collateralization ratio is liquidated first. This approach is fair, but it’s also easy to be exploited. Large players can watch the liquidation queue and specifically target the position with the lowest collateralization ratio, grabbing the fattiest slice before other liquidators get there.
But @TermMax does things differently. Its liquidation window is public—anyone can participate—but the liquidation order isn’t queued by collateralization ratio; it’s prioritized by time. Whoever initiates the liquidation request first gets processed first.
The logic behind this design is: liquidation is a public service, not an arbitrage competition. If everyone rushes to liquidate the position with the lowest collateralization ratio, then other positions that are also close to liquidation may end up being neglected, which could lead to more bad debts. By processing on a first-come, first-served basis, liquidators get spread across different positions, and overall liquidation efficiency is actually higher.
Another detail is the rule for partial liquidation. If a debt is relatively large, a liquidator can choose to liquidate only part of it, rather than everything. For example, with a $100,000 debt, the liquidator could first liquidate $50,000 and take the corresponding collateral. The remaining $50,000 stays on the books; if the price continues to fall, it can be liquidated again in the next round.
This partial liquidation mechanism gives borrowers a buffer. If your position is partially liquidated, you still have a chance to add collateral or repay part of the debt to save the remaining position. But if you’re fully liquidated in one go, you lose that position entirely.
Of course, partial liquidation also means the liquidator’s returns are diluted. But TermMax’s documentation argues that a healthy lending market shouldn’t encourage liquidators to gamble on a borrower’s liquidation cascade. Instead, liquidation should function as a steady risk-release mechanism.$ETH