Borrowers are required to make monthly interest payments, with a 14 day grace period for late payments. In addition to interest payments, penalties are charged during the grace period.
Liquidation process is not initiated if a borrower meets the interest and penalty requirements within the grace period.
If the borrower fails to meet the interest and penalty payments after the grace period, the total value of the loan will be written off, the value of “x”RWA will decrease proportionally, and the liquidation process will be initiated.
During the liquidation process, NAOS will tap into the insurance coverage to recover a portion of the fund immediately, and increase the value of “x”RWA by the same amount.
The default loan will enter off-chain legal proceedings, recouped capital will be returned to the pool, and increase the value of “x”RWA by the same amount.
In the case of default, insurance coverage and junior pool will assume first-loss to protect Index Pool lenders.