As crypto trading continues to become more popular, decentralized exchanges are becoming an increasingly attractive option for traders looking for alternatives to centralized exchanges. One such exchange is MakerDAO, which offers a decentralized platform for crypto trading.
The platform uses a decentralized governance system to manage the exchange, and it is this system allows traders to loan Dai, an ERC20 token, to other traders.
But what happens when a trader doesn't pay back their loan? Read on to find out.
If a trader does not repay their loan, the MakerDAO system will automatically liquidate the collateral posted as part of the loan agreement. The amount of Dai that is repaid to the system will be determined by the value of the collateral at the time of liquidation. If the value of the collateral is less than the amount of Dai that was borrowed, the trader will be responsible for repaying the difference. You can contact customer service for more details.
If a trader cannot repay their loan, they may find themselves in debt to the MakerDAO system. In such cases, it is up to the individual trader to negotiate a repayment plan with the MakerDAO team. If you can't reach a repayment plan, the trader may be forced to liquidate their collateral to repay the loan.
The MakerDAO system is designed to protect lenders and borrowers, but it's important to remember that you should only take out loans when you can repay them. Otherwise, traders may find themselves in debt to the system with no easy way to repay it.
The time a trader has to repay their loan depends on the terms of the loan agreement. Once the loan is taken out, the borrower will have a set amount of time to repay it. Suppose they don't repay it within that time frame. In that case, the MakerDAO system will automatically liquidate their collateral, and they will be required to pay back the loan and any interest accrued.
It's important to note that the terms of the loan agreement can vary depending on the amount of Dai borrowed and the collateral's value. For example, a loan with a lower amount of Dai borrowed and a higher value of the collateral may have a shorter repayment period than a loan with a higher amount of Dai borrowed and a lower value of the collateral.
If a trader cannot repay their loan within the agreed-upon time frame, they may be able to negotiate an extension with the MakerDAO team. Extensions are not guaranteed and will likely only be granted in cases where the borrower can show that they have extenuating circumstances that prevented them from repaying the loan on time.
It's also important to note that even if an extension is granted, MakerDAO will still require the borrower to repay the loan plus any interest accrued. The only difference is that they will have more time to do so. You can call customer service for more information.
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