> For the complete documentation index, see [llms.txt](https://docs.fluidnft.org/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.fluidnft.org/risk-management/risk-framework/recovery-liquidation.md).

# Recovery / Liquidation

The dual goal of the recovery process is to protect protocol solvency while ensuring the maximum recovery possible for the owner of the underlying collateral. 

## Recovery Triggers

FluidNFT's recovery process relies on third parties, acting in their own self-interest, to trigger recoveries on defaulted loans. Their incentive being 1% of the auction price.  

### Fixed-Term Loans

Fixed-term loan recoveries may be triggered if & when a borrower fails to repay an outstanding loan before the end of the grace period.

### Open-Ended Loans

Open-Ended loan recoveries may be triggered if & when a borrower's loan becomes undercollateralised. 

## Recovery Process

### Step-By-Step

<table><thead><tr><th width="170.33333333333331">Recovery Stage</th><th width="132">Loan Type</th><th width="109">Duration </th><th>Description</th></tr></thead><tbody><tr><td>Grace Period</td><td><p>Fixed-Term</p><p></p><p>Open-Ended</p></td><td><p>72 hours</p><p></p><p>24 hours</p></td><td>Borrowers can still avoid collateral loss by repaying the outstanding loan principal plus accrued interest, in addition to a default fee.</td></tr><tr><td>Dutch Auction</td><td>All</td><td>24 hours</td><td>If no repayment is made, the underlying collateral goes into a price decreasing; Dutch auction. With a significant  discount to the current price available to lenders of the corresponding pool.</td></tr></tbody></table>

### 90% Borrower Recovery

To compensate for the collateral loss, and as insurance against losing significant value as a result of interacting with the FluidNFT protocol: all auction proceeds minus the outstanding loan balance and a liquidation fee go to the original owner.&#x20;

In a fair and liquid market, with a 10% liquidation fee (for example), this should equate to the borrower effectively selling their NFT for 10% below market value, rather than a complete loss.


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