"isolated market" sounds like "isolated risk."
i thought that too, ngl.
then i sat down with TermMax's liquidation page and realized i was reading that word too generously.
isolated per market means FT holders share the market-level redemption outcome.
hmm. that's not nothing.
clean numbers. illustrative, not a real event. TermMax hasn't published this exact case:
a market has 1,000 FT outstanding.
400 belong to lender A.
600 belong to lenders B + C.
A funded a borrower who repays in full. healthy position, no drama.
B + C funded a different borrower whose collateral falls faster than the 2-hour liquidation window can clear.
say only 360 USDC of the 600 debt is recovered, and assume total distributable value ends up at 760 USDC.
now there are 1,000 FT claims against 760 USDC of value.
that's roughly 76 cents per FT.
lender A's 400 FT are now worth about $304.
A just has a $96 shortfall.
not because A's borrower failed.
because someone else's borrower failed inside the same market.
that's the part that changed how i read "physical delivery" tbh.
TermMax says after unsuccessful or partial liquidation, the redemption pool can contain both underlying and collateral tokens, and FT holders get a proportional share based on their FT holdings.
your FT is a claim on the market's final redemption pool, not an isolated claim on one borrower's outcome.
TermMax says physical delivery "minimizes" liquidation losses. it doesn't say losses disappear.
i couldn't find a published real case of this exact failure mode. that distinction matters.
i'm not saying this happened. i'm saying the mechanism appears capable of making losses inside a market relevant to every FT holder in it.
so the question:
if you're holding FT in a market with one aggressive borrower, do you know how much of your risk comes from that one borrower?
or did you just check the APR and move on?
"isolated" describes the market boundary.
it doesn't necessarily describe your risk boundary.
#termmax @TermMax
#DeFiRisk
i thought that too, ngl.
then i sat down with TermMax's liquidation page and realized i was reading that word too generously.
isolated per market means FT holders share the market-level redemption outcome.
hmm. that's not nothing.
clean numbers. illustrative, not a real event. TermMax hasn't published this exact case:
a market has 1,000 FT outstanding.
400 belong to lender A.
600 belong to lenders B + C.
A funded a borrower who repays in full. healthy position, no drama.
B + C funded a different borrower whose collateral falls faster than the 2-hour liquidation window can clear.
say only 360 USDC of the 600 debt is recovered, and assume total distributable value ends up at 760 USDC.
now there are 1,000 FT claims against 760 USDC of value.
that's roughly 76 cents per FT.
lender A's 400 FT are now worth about $304.
A just has a $96 shortfall.
not because A's borrower failed.
because someone else's borrower failed inside the same market.
that's the part that changed how i read "physical delivery" tbh.
TermMax says after unsuccessful or partial liquidation, the redemption pool can contain both underlying and collateral tokens, and FT holders get a proportional share based on their FT holdings.
your FT is a claim on the market's final redemption pool, not an isolated claim on one borrower's outcome.
TermMax says physical delivery "minimizes" liquidation losses. it doesn't say losses disappear.
i couldn't find a published real case of this exact failure mode. that distinction matters.
i'm not saying this happened. i'm saying the mechanism appears capable of making losses inside a market relevant to every FT holder in it.
so the question:
if you're holding FT in a market with one aggressive borrower, do you know how much of your risk comes from that one borrower?
or did you just check the APR and move on?
"isolated" describes the market boundary.
it doesn't necessarily describe your risk boundary.
#termmax @TermMax
#DeFiRisk