Borrower Default

Before a loan expires, the loan goes through the pre-liquidation phase(24 hours, which can be changed by DAO later on). At the pre-liquidation phase, the borrower is allowed to pay back. If the loan is not paid until the end of the pre-liquidation phase, the RWA goes into liquidation process.

When the lender makes the loan offer to the borrower, the lender can choose the liquidation method at the borrower's default between 'Auction off' or 'Lender buys'. If the lender chooses 'Auction off', the collateralized RWA is put on auction for liquidation but if the lender chooses 'Lender buys', the lender has a chance to claim the collateralized RWA for 24 hours. If the lender doesn't claim it, then it goes to auction for the liquidation.

In order for the lender to claim the collateralized RWA, the lender needs to pay the debt which the borrower was supposed to pay.

When the collateralized RWA is put on auction, the starting price is set at the price of loan amount that was curated by curators and then 2% of the starting price is cut everyday for first 10 days and 4% of the starting price is cut for next 10 days. If the price decreases to 40% of the starting price for 20 days, the auction ends.

If the RWA is not sold until the auction is finished, 2nd auction can be started on the admin site with the same rule and the starting price will be the ending price of the 1st auction.

The payment from the sale on the auction will be distributed in order of priority below. If the payment is not enough to cover all of the payout, it will be distributed to the upper order first. Curation Reward Pool, however, is always paid from Insurance Vault in case the payment from the sale on the auction can't cover it.

• The principal to Pool (if leverage is used)

• The principal to Lender

• The interest to Pool (if leverage is used)

• The interest to Lender

• To Curation Reward Pool

• To Insurance Vault (if leverage is used)

• To Commission

• The remnant to Borrower