And that makes the maturity date more complicated than it first looks.
I initially read TermMax’s liquidation flow as fairly familiar: debt reaches maturity, unpaid positions face liquidation, collateral covers what borrowers did not repay. But the mechanism does not necessarily end there. When a borrower misses repayment, TermMax opens a two-hour liquidation window. If debt is still unpaid or only partially liquidated after that window, physical delivery begins and the redemption pool can contain both the underlying asset and collateral. FT holders then redeem proportionally from that mixed pool.
For a researcher, I think that changes what deserves attention when comparing fixed-rate markets. Looking only at the promised maturity value misses the state the system can enter when liquidation cannot fully clear the debt. The terminal outcome is no longer just “repaid” versus “defaulted.” The composition of what backs redemption can change.
That matters especially when studying markets whose collateral may behave very differently from the debt asset under stress.
So a TermMax maturity has another variable worth modelling: what could actually be sitting in the redemption pool if the normal liquidation path runs out of room?
A fixed rate tells you the scheduled economics.
Physical delivery tells you why the failure path deserves its own model.
@TermMax #TermMax
I initially read TermMax’s liquidation flow as fairly familiar: debt reaches maturity, unpaid positions face liquidation, collateral covers what borrowers did not repay. But the mechanism does not necessarily end there. When a borrower misses repayment, TermMax opens a two-hour liquidation window. If debt is still unpaid or only partially liquidated after that window, physical delivery begins and the redemption pool can contain both the underlying asset and collateral. FT holders then redeem proportionally from that mixed pool.
For a researcher, I think that changes what deserves attention when comparing fixed-rate markets. Looking only at the promised maturity value misses the state the system can enter when liquidation cannot fully clear the debt. The terminal outcome is no longer just “repaid” versus “defaulted.” The composition of what backs redemption can change.
That matters especially when studying markets whose collateral may behave very differently from the debt asset under stress.
So a TermMax maturity has another variable worth modelling: what could actually be sitting in the redemption pool if the normal liquidation path runs out of room?
A fixed rate tells you the scheduled economics.
Physical delivery tells you why the failure path deserves its own model.
@TermMax #TermMax