Loan lifecycle & state machine

Synchronous path (default — most markets)

Applies when ILiquidationAdapter.isAsynchronous() == false (DEX swap, NFT auction). Liquidation resolves in one transaction.

ACTIVE → GRACE_PERIOD → LIQUIDATED
   │                        │
   └─ repay → REPAID        └─ repay during grace → REPAID

Asynchronous path (issuer-redemption / RWA)

ACTIVE → GRACE_PERIOD → LIQUIDATION_CURE → LIQUIDATION_SETTLING → LIQUIDATED
              │                  │
              └─ REPAID          └─ repay (still reversible) → REPAID
                                                      │
                                                      └─ settlement timeout
                                                         → flag for manual LP intervention

LIQUIDATION_CURE

Entered when liquidation conditions are first met (grace expired or health factor breached).

• Interest accrual freezes immediately (frozenInterestAt = block.timestamp)
• Window length is set per liquidation-adapter instance (issuer-specific cancellation cutoffs)
• Current position holder may repay: principal + frozen interest + liquidation penalty
• Penalty is charged by default — this is a genuine default event, not a courtesy extension
• LPs may configure penalty-on-cure per market; default is non-zero

LIQUIDATION_SETTLING

Entered when the cure window expires without repayment.

• Adapter’s liquidate() submits redemption to the issuer
• Irreversible — collateral is committed to the issuer’s settlement pipeline
• Settlement confirmation (callback or keeper poll) distributes proceeds → LIQUIDATED
• If confirmation never arrives within the outer timeout → flagged for manual LP intervention (where issuer-insolvency risk becomes operational)

Health factor

Optional per market. When enabled, loans can enter liquidation paths before expiry if health drops below the configured threshold.

Position holder vs original borrower

For markets using TransferablePositionAdapter, repayments, surplus, and alerts resolve to the current position holder — not necessarily the original borrower. Indexers must track NFT Transfer events.