Borrower Grace Period
Last updated
V1
Last updated
Unlockd's primary focus is centered around optimizing the value that users receive while simultaneously mitigating any potential detrimental occurrences. A key aspect of this focus is to minimize the likelihood of loan liquidation, employing preventative measures to the greatest extent feasible.
Borrowers seek to safeguard their NFTs by utilizing loans secured against them. In order to address this concern, proactive measures have been implemented, including the establishment of a Dynamic Loan-to-Value (LTV) framework that effectively adapts to asset and market conditions, ensuring loan solvency even during periods of volatility fluctuations.
Nevertheless, it is acknowledged that certain loans may still encounter circumstances leading to liquidation. The concept of the Borrower Grace Period aims to offer borrowers an extended timeframe to restore their Health Factor by either repaying a portion or the entirety of the debt or by providing supplementary collateral. This grace period provides borrowers with an opportunity to rectify their loan situation and safeguard their NFT assets.
Simultaneously with the initiation of the Liquidation Auction, the Borrower Grace Period (BGP) is also in effect. However, it is important to note that the BGP concludes 15 minutes prior to the commencement of the Auction. This intentional timing arrangement is implemented to mitigate any potential issues arising from delayed transactions, particularly when borrowers opt to repay their obligations during the final moments. By concluding the BGP ahead of the Auction, the risk of complications arising from last-minute repayments is minimized.
The Borrower Grace Period has an initial duration of 48h, but It may vary.
Setting a standard period common to all situations is very dangerous in cases where the market suffers high volatility and prices decrease very rapidly: the probability of default would increase considerably.
Therefore, the Borrower Grace Period is dynamic: an interval between 48h and 0h will be set depending on the price delta between the actual liquidation price and the original price at which the loan was given. This interval may vary constantly depending on the price movements of the collateral.
Learn more about how this period is calculated for each loan in our Risk Framework Documentation:
