Default and seizure
A loan on AMP Finance has three windows. Which one it is in decides what each side can do.
- Within term: repay with no late fee; the lender can do nothing
- Grace window: repay with the late fee; the lender still can do nothing
- After grace: repayment is closed; the lender may seize all the collateral
- Seizure closes the loan permanently; nothing is sold or returned
- The protocol never seizes on its own and never checks prices
The three windows
- Repay
- principal + interest
- Seize
- not allowed
- Repay
- principal + interest + late fee
- Seize
- not allowed
- Repay
- no longer possible
- Seize
- allowed, takes all collateral
| Window | Borrower may repay | Lender may seize | Interface label |
|---|---|---|---|
| Within term | Yes, principal + interest | No | Within term |
| Grace window | Yes, principal + interest + late fee | No | Grace window |
| After the grace window | No | Yes | Grace elapsed |
| Repaid | Done | No | Repaid |
| Seized | No | Done | Seized |
Within term
The loan runs. Repaying at any point costs the same. The lender can do nothing with the collateral.
The grace window
After the due date, a short window opens. Its length is fixed by the term, and the loan's page shows exactly when it ends. Terms and grace windows explains how they are set.
During the grace window the borrower can still repay, with the late fee added, and the lender still cannot touch the collateral. The window belongs to the borrower alone. Its purpose is to make sure a lender cannot take collateral at the very second a loan falls due, ahead of a repayment that is seconds away.
It is not a cushion for lateness. The late fee applies from the first second after the due date, grace or no grace. The window changes when seizure becomes possible, not when lateness begins.
After the grace window
The instant the grace window closes, two things change at once: repayment is no longer possible, whether or not the lender has done anything, and the lender may seize the collateral.
Seizure takes all of the collateral and closes the loan permanently. Nothing is sold, no price is checked, nothing is returned to the borrower, and there is no way to reopen it. The lender decides when to seize, and until they do the collateral simply waits. But the borrower's ability to repay ended when the window closed. The last second a borrower can repay is the same second the lender becomes able to seize.
What the protocol does not do
- It does not seize automatically. Only the lender can.
- It does not sell collateral, at any point, for any reason.
- It does not take a share of seized collateral. On a default the protocol earns nothing.
- It does not consider what the collateral is worth. A borrower who lets a loan default loses the collateral whether it is worth more or less than the debt.
The loan's page shows a clock and the phase label from the table above. The clock follows the network's time, not the computer's. A loan in Grace window is a loan that should be repaid immediately.
Risks for borrowers
A borrower's exposure on AMP Finance is simple to state: repay in full and on time, or lose the collateral. Everything below is a way of missing that.
| Risk | What helps |
|---|---|
| Missing the deadline. The due date is fixed and does not move. After the grace window closes, repayment is impossible and the collateral goes to the lender, whatever it is worth. | Repay early. Every transaction takes tens of seconds, and a syncing wallet or a wrong clock can turn "a few minutes early" into "late". Treat the due date as a wall, not a target. |
| Being unable to repay in full. There is no partial repayment. A borrower with 900 of the 1,100 due is in the same position as one with nothing. | Borrow only what can be repaid in full from funds that will be there. Anyone can repay on a borrower's behalf, so funds in another wallet can be used directly. |
| Losing the loan token. Repaying does not need it, but claiming the collateral back does. | Keep the token in the wallet, never send it, and keep the seed phrase safe. A reinstalled wallet recovers the token. Positions and recovery. |
| Restoring too late. A wallet restored from its seed phrase recovers the loan token, but not the time that passed. | Restore before the deadline, not after. Anyone can repay in the meantime, without the token. |
| Collateral falling in value. | This is a risk to the lender, not the borrower. Nothing happens to a loan when the collateral's price moves: no liquidation, no margin call, nothing to top up. The choice at the end is the borrower's. |
The current deployment is the testnet, where every token is a test token with no value. The protocol has not yet been deployed on Midnight's main network.