🔃Recovery / Liquidation

Targeting 90% Borrower Recovery while Protecting Protocol Solvency

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

Recovery Stage	Loan Type	Duration	Description
Grace Period	Fixed-Term Open-Ended	72 hours 24 hours	Borrowers can still avoid collateral loss by repaying the outstanding loan principal plus accrued interest, in addition to a default fee.
Dutch Auction	All	24 hours	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.

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.

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.