The interest rate is fixed, but what does the lender receive if the borrower fails to repay?
Suppose you put 1,000 USDC into a fixed-rate position and already know the expected repayment at maturity. Sounds straightforward. But there is one question that is often overlooked: if the borrower cannot fully settle the debt, what asset actually backs that “fixed” return?
On TermMax, a loan is not just an APY figure. Each fixed-rate market has a debt token, collateral, a maturity date, and LTV thresholds. The borrower’s position is represented by a GT, an ERC-721 that records the debt and collateral. If LTV reaches the LLTV threshold, the position can be liquidated.
The more interesting part comes afterward. If the debt cannot be fully resolved, TermMax uses a physical delivery mechanism. When FT holders redeem through the pool, they may receive a proportional allocation of both the underlying token and collateral, rather than automatically getting everything back in the original asset.
To me, this detail matters more than the fixed-rate number itself. Physical delivery does not make the loan “risk-free.” It changes how the remaining value is distributed when debt recovery does not follow the ideal scenario.
The benefit is that the system has another path for handling situations where collateral cannot be converted cleanly into the expected repayment asset. The trade-off is that lenders may end up holding a different mix of assets than expected, while still facing collateral price, liquidity, oracle, and smart contract risks.
So before looking at an FT and asking, “What is the yield?”, I would ask one more question:
“In the bad-case scenario, what am I actually getting repaid with?”
@TermMax #TermMax $ALPINE $CLO $ACE
Suppose you put 1,000 USDC into a fixed-rate position and already know the expected repayment at maturity. Sounds straightforward. But there is one question that is often overlooked: if the borrower cannot fully settle the debt, what asset actually backs that “fixed” return?
On TermMax, a loan is not just an APY figure. Each fixed-rate market has a debt token, collateral, a maturity date, and LTV thresholds. The borrower’s position is represented by a GT, an ERC-721 that records the debt and collateral. If LTV reaches the LLTV threshold, the position can be liquidated.
The more interesting part comes afterward. If the debt cannot be fully resolved, TermMax uses a physical delivery mechanism. When FT holders redeem through the pool, they may receive a proportional allocation of both the underlying token and collateral, rather than automatically getting everything back in the original asset.
To me, this detail matters more than the fixed-rate number itself. Physical delivery does not make the loan “risk-free.” It changes how the remaining value is distributed when debt recovery does not follow the ideal scenario.
The benefit is that the system has another path for handling situations where collateral cannot be converted cleanly into the expected repayment asset. The trade-off is that lenders may end up holding a different mix of assets than expected, while still facing collateral price, liquidity, oracle, and smart contract risks.
So before looking at an FT and asking, “What is the yield?”, I would ask one more question:
“In the bad-case scenario, what am I actually getting repaid with?”
@TermMax #TermMax $ALPINE $CLO $ACE