How do liquidations work?

If a Borrower misses their repayment, they have a five day grace period to make up the payment. Borrowers are encouraged to arrange with the Pool Delegate to catch up the payment during this time, or to inform them of the nature of any temporary cashflow issue. If the Borrower does not make the payment within the grace period, their collateral can be liquidated by the Pool Delegate and repaid to the Liquidity Pool(s) which funded the loan. Institutions who default will incur severe reputational damage which would impair their ability to continue operating in the sector.

Borrowers also enter a Master Loan Agreement during onboarding which enables legal enforcement. The Master Loan Agreement sets out the terms and conditions on which the Borrower can obtain loans from the Liquidity Pools.