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Loans continue indefinitely until the principle with interest is repaid or the collateral is margin called. If collateral is margin called, it is claimed by the protocol, allowing a Collector to obtain it via the Redemption Mechanic by burning $NFT. Effectively, the protocol is agreeing to purchase the asset at the margin maintenance price. Generally this will result in a surplus of value flowing to $NFT stakers, though losses are possible if the value of a collateral suddenly gaps down in excess of the margin maintenance buffer.
When collateral falls under Margin Maintenance, it will be eligible for liquidation, allowing the protocol to hold it in the Unreserved section of the
MarketVault. Liquidators are incentivized to move NFTs under Margin Maintenance to the Unreserved section of the
MarketVault through a flat fee that is scaled via the Chainlink gas price oracle.
Since all loans are issued in
NFT Index Token, in order for the protocol to sustain a loss, the collateral accepted for a loan must not just lose value, but lose value against the broader NFT market as reflected by the
MarketVault. If collateral loses value, but the overall NFT market also moves in equal proportion, all LTV ratios remain unchanged. This insulates the protocol in its capacity as counterparty from broader market volatility.