I realized something when I tried linking a 87% utilization ratio with another component in the TermMax mechanism — the ability to sell FT early on the AMM before maturity.
Narrative about FTs always emphasizes flexibility — lenders don’t want to wait until maturity; they can sell FTs on the secondary market to withdraw funds early. But liquidity in that secondary market depends on whether there is enough free capital willing to buy back the FTs, and not on the protocol’s total TVL.
If most capital has been locked up in an active loan, as the 87% utilization suggests, then the amount of idle capital available to act as the buyer on the AMM is also shrinking in proportion to that same ratio. In other words, the exact moment when lenders need liquidity the most — because they want to exit early — is also when the market has the least idle capital ready to buy back their positions.
This is a fairly subtle structural paradox: high utilization is a good signal that there is real borrowing demand, but at the same time it quietly erodes the necessary condition for FT’s promise of “early flexible exit” to actually work. Two seemingly independent metrics — capital utilization efficiency and early-exit liquidity — end up pulling in opposite directions on the same system @TermMax .
Self-refutation: this is a structural relationship inference. I don’t have specific data on the AMM liquidity depth for FTs across different maturities to verify how severe the real-world impact is.
I’m waiting to see whether TMX publishes AMM liquidity depth data for FTs under different utilization levels, so we can precisely understand how early exit ability is affected when most of the capital is locked into active loans.
#termmax $BTC $ETH
Narrative about FTs always emphasizes flexibility — lenders don’t want to wait until maturity; they can sell FTs on the secondary market to withdraw funds early. But liquidity in that secondary market depends on whether there is enough free capital willing to buy back the FTs, and not on the protocol’s total TVL.
If most capital has been locked up in an active loan, as the 87% utilization suggests, then the amount of idle capital available to act as the buyer on the AMM is also shrinking in proportion to that same ratio. In other words, the exact moment when lenders need liquidity the most — because they want to exit early — is also when the market has the least idle capital ready to buy back their positions.
This is a fairly subtle structural paradox: high utilization is a good signal that there is real borrowing demand, but at the same time it quietly erodes the necessary condition for FT’s promise of “early flexible exit” to actually work. Two seemingly independent metrics — capital utilization efficiency and early-exit liquidity — end up pulling in opposite directions on the same system @TermMax .
Self-refutation: this is a structural relationship inference. I don’t have specific data on the AMM liquidity depth for FTs across different maturities to verify how severe the real-world impact is.
I’m waiting to see whether TMX publishes AMM liquidity depth data for FTs under different utilization levels, so we can precisely understand how early exit ability is affected when most of the capital is locked into active loans.
#termmax $BTC $ETH