Defaults and liquidation, step by step.

A loan becomes eligible for default when one condition is met: the maturity timestamp has passed, and so has the grace period on top of it. Grace is your term or seven days, whichever is shorter, so a thirty-day loan gets the full week and a three-day loan gets three days. That is the entire test. The card’s market price is not in it; a crash cannot liquidate you, and no admin can call the loan early. Until the clock runs out, the borrower can repay on the original terms.

Once eligible, the default is not automatic. Someone submits the transaction, and the protocol lets anyone do it, typically a keeper bot. One transaction marks the loan defaulted and opens the sale, taking both of its prices from the loan itself: it starts at what the oracle appraised your card at when you borrowed, and it stops at the principal you drew.

The starter pays a little rent for the new accounts and does not get it back. Settlement refunds whoever finishes the sale, not whoever opened it — so opening one is a favour to the pool, and closing one is the paid job. Worth knowing if you were planning to run a bot on the wrong half of that.

The sale opens at the appraisal and falls toward the floor over twenty-four hours. The first bidder to accept the current price wins; there is no second round and no escalation. Bid and settlement are usually bundled in one transaction, so the card moves to the winner immediately.

Where the floor sits is the whole design. It is your full payoff — principal and interest — grossed up for the two charges a sale carries, so a completed sale repays the loan and nothing is left owing. It also means a card that has fallen below that number simply does not sell: the auction opens flat at the floor and stays there until it expires, and the card goes into protocol custody instead.

Settlement applies one fixed order to the winning bid. Five percent comes off the top as the buyer’s premium, then five percent of what is left as the sale commission. The pool is repaid next — principal first, then the fixed interest. Everything after that is the borrower’s.

Work one through. A card appraised at $4,000, against a $2,000 principal and $120 of interest, sells at $3,000: $150 buyer’s premium, $142.50 commission, $2,000 to the pool as principal, $120 as interest, and $587.50 to the borrower. Now sell the same card at the floor instead, which on this loan is $2,349.03. The premium takes $117.45 and the commission $111.58, leaving exactly $2,120 — the whole payoff. The pool is made whole and the borrower gets nothing, because the floor is the point at which there is nothing spare.

That second case is the one people get wrong, and it used to be worse than a misunderstanding. The floor was the principal, and because both charges come off the price before the pool sees anything, a sale at that floor returned about 90% of the principal and none of the interest — the floor bounded the price and not the recovery. It is now set so that the charges come out of the buyer’s price rather than out of the lender’s money. The cost of that is on the other side: a card that will not fetch the payoff plus the charges does not sell at all.

Your remainder is not pushed to your wallet. It is recorded as a credit in your name and you withdraw it yourself — the same pull-rather-than-push pattern the protocol uses for every refund. Claim it within twelve months. After that it can be swept, and an unclaimed residual is a genuinely silly way to lose money you are owed.

A defaulted loan is not a closed one. Repaying what you owe returns the card to you at any point until the sale actually settles. The right survives the default, survives the sale opening, and survives bids landing on it. It ends when the card changes hands, and not a moment before.

If a bidder is standing when you repay, they are not left out of pocket — their money is set aside as a credit they collect themselves. Their bid loses, which is what bids do.

A sale that runs its full day without a bid does not hand the card to the lender. There is no path anywhere in the protocol that puts collateral in a lender’s wallet; the two instructions that once did were deleted precisely so that nobody could believe otherwise. The card moves into the protocol’s own custody, the loan and its locks close, and the pool writes the loan off in full. No cash, no collateral, no consolation.

It is worth being blunt that this outcome is worst for the lender. The borrower has lost the card either way; the pool has lost the money and taken the write-off in full. There is now an exit from that custody — MLKY can sell the card off-platform, repay the pool out of the proceeds and credit the borrower anything above the debt — and for a period there was not one, which is worth saying plainly because a card really could enter a state it could not leave. What has not changed is that nothing obliges that sale and no deadline sets when it must happen. So neither side should treat a held card as money on the way: the write-off is immediate and the recovery is possible and unscheduled. The physical slab, throughout all of this, has not moved: it is in the issuer’s vault, where it has been since before the loan existed.