Asset Recovery Fee

When a loan has been in default for more than 48 hours, it becomes eligible for recovery. The process for asset recovery is described in detail in the Asset Recovery section.

In the case that an external debt collector is nominated, they will generally mandate that a portion of the recovered debt be withheld as a fee for the recovery service. Generally, these fees can vary between 5% and 30% of the recovered amount. If such a scenario presents itself, a formal proposal will be made to the DAO to accept the proposed terms. If the DAO accepts the proposal, the debt collector will pursue the debt collection, resulting in a partial loss for lenders if assets are recovered.

If a debt collector cannot be named or the cost of debt collection is deemed too expensive by the DAO, a subsequent proposal, requesting to sell the debt to a third party, will be submitted to the DAO. If the proposal passes, the debt will be auctioned wholesale or sold if a buyer presents themselves. In such a scenario, holders of the debt token will realize a partial loss.

In some cases, such as when a borrower declares bankruptcy and their liability to the protocol is not considered preferential in comparison with other debts by the jurisdiction handling the bankruptcy, assets may not be able to be recovered at all, in which case lenders realize a complete loss on their assets.