There is no liquidation during the loan period regardless of market variation ensuring the best user experience for the borrower. This risk is taken into account by the LPs.
The liquidation mechanism aims to extract maximum value in the event of a default on a loan. The liquidity is then redirected to the various players.
The first version of the protocol will use a Dutch auction system lasting three days and starting at three times the LTV of the loan. After the due date and if the loan is not repaid, the collateral is on sale for liquidation. Borrowers can repay at any time, even after limit date, as long as the collateral is not liquidated. For the next versions, we plan to add other mechanisms (integration with other protocols, raffle, share redemption, etc.
A loan can be backed by one or more LPs. In the case of a liquidation, one of the LPs can buy back the share of the other LPs to have all the shares at the dutch auction price and claim the NFT at any time.