#termmax @TermMax
I was checking TermMax's TVL today and one number sent me back to the liquidation docs.
$31.22M, down 7.2% over the past 30 days, per DeFiLlama.
Not a crash. But it made me look more closely at what happens when a liquidation doesn't go cleanly.
When a loan hits its LLTV threshold, or a borrower misses maturity, the position gets a 2-hour liquidation window.
Liquidators earn a 5% reward from the collateral. The protocol takes a 5% penalty.
Normally, that's the whole story.
But what happens when 2 hours isn't enough?
TermMax's own risk docs describe the fallback. If liquidation can't fully execute because of a sharp price move or thin liquidity, lenders receive a proportional share of the borrower's collateral instead of the asset they originally lent.
Physical Delivery.
Automatic. No lender opt-in.
That was the part I had to think about twice.
The rate is fixed.
The maturity is fixed.
The recovery path isn't.
And I don't think that's necessarily a flaw. If the alternative is a failed liquidation and a worse loss, receiving the underlying collateral can be the better outcome.
But it changes what “certainty” means for the lender.
You know the rate.
You know the term.
You don't necessarily know which asset will be in your wallet if the normal liquidation path breaks.
A 7.2% TVL decline doesn't tell me Physical Delivery is close to triggering anywhere. I don't have that data.
It does make me want to see another number alongside TVL: how much collateral can actually be cleared inside that 2-hour window?
Because that's the boundary I'd want to understand before calling the liquidation mechanism resilient under stress.
If TermMax ever makes that number visible, that's the one I'd be watching.
I was checking TermMax's TVL today and one number sent me back to the liquidation docs.
$31.22M, down 7.2% over the past 30 days, per DeFiLlama.
Not a crash. But it made me look more closely at what happens when a liquidation doesn't go cleanly.
When a loan hits its LLTV threshold, or a borrower misses maturity, the position gets a 2-hour liquidation window.
Liquidators earn a 5% reward from the collateral. The protocol takes a 5% penalty.
Normally, that's the whole story.
But what happens when 2 hours isn't enough?
TermMax's own risk docs describe the fallback. If liquidation can't fully execute because of a sharp price move or thin liquidity, lenders receive a proportional share of the borrower's collateral instead of the asset they originally lent.
Physical Delivery.
Automatic. No lender opt-in.
That was the part I had to think about twice.
The rate is fixed.
The maturity is fixed.
The recovery path isn't.
And I don't think that's necessarily a flaw. If the alternative is a failed liquidation and a worse loss, receiving the underlying collateral can be the better outcome.
But it changes what “certainty” means for the lender.
You know the rate.
You know the term.
You don't necessarily know which asset will be in your wallet if the normal liquidation path breaks.
A 7.2% TVL decline doesn't tell me Physical Delivery is close to triggering anywhere. I don't have that data.
It does make me want to see another number alongside TVL: how much collateral can actually be cleared inside that 2-hour window?
Because that's the boundary I'd want to understand before calling the liquidation mechanism resilient under stress.
If TermMax ever makes that number visible, that's the one I'd be watching.