Introduction
  • 👋Introduction
  • 🏛️Governance
    • Propose a Lending Term
    • Offboard a Lending Term
    • Lender Veto
  • 🫴Borrowing
    • Lending Terms
    • Debt and Interest Accounting
    • Liquidation
  • 📚Key Concepts
    • Bad Debt
    • Surplus Buffer
  • 🗳️Staking
  • 🧠GUILD Node
  • ⚙️Smart Contracts
  • 🤝Integration
  • Github
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  1. Key Concepts

Bad Debt

Bad debt in a lending market means that the value of collateral assets is insufficient to recover the outstanding debt upon liquidation. The largest onchain lending markets like Aave, Compound, and MakerDAO have no way to account for bad debt, leading to bank run risk.

On Credit v1, any bad debt is immediately marked down upon the conclusion of a liquidation auction, ensuring a fair outcome among lenders.

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Last updated 8 months ago

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