Solver Liquidation & Fallback

Once a loan is live on IRIS, two things are true at the same time: your debt is sitting on an underlying venue, and a Solver bond is standing behind the fixed rate you accepted.

If borrowing costs on the venue rise sharply, the Solver absorbs that spread out of its bond. That bond buffer is what allows your fixed terms to remain intact while the position is still safely covered.

When Fallback Begins

Fallback begins when the protocol can no longer justify extending fixed-rate protection with the Solver's remaining bond coverage.

This is intended to be rare:

1. Solvers quote using risk models rather than static pool pricing.

2. Bond requirements are designed to leave meaningful room above ordinary market moves.

3. Keepers can act as soon as a position becomes unsafe, rather than waiting for the loss to deepen further.

When that threshold is reached, a keeper may call liquidatePosition(). The protocol slashes the Solver bond, pays the keeper incentive, and leaves the position on the underlying venue that is already carrying the debt.

What Fallback Means For Borrowers

Fallback marks the end of active fixed-rate protection for that position.

Your loan remains open, but it is now simply resting on the underlying venue rather than being actively supported by Solver bond capital. From that point onward, coupon preservation no longer applies.

If you close the position after fallback, you owe the fixed-rate amount earned through the period in which fixed protection was still active, rather than the unpaid remainder of the full original coupon.

If you choose to leave the position open, the economics now reflect the live venue state. In stressed conditions that can mean a meaningfully higher borrowing cost.

As side context, the position will usually already be sitting on the venue the Solver considered most efficient to carry at the time. That is often favorable, but it should be understood as context rather than a protocol guarantee.

Closing a Position During Fallback

If your position has entered fallback, you may call repayAndClose() immediately.

This allows you to settle the remaining debt and recover your collateral without continuing under the original coupon-preservation logic. The key tradeoff is timing: the longer you wait after fallback, the more you expose yourself to the venue's live borrowing conditions.

---

Loan Expiration (The Late Spread)

Expiration is a different path. Fallback is about Solver bond protection ending early; expiration is about a borrower leaving the loan open beyond maturity.

If a loan remains open past maturity + 1 hour, the protocol activates a time-weighted late spread to prevent indefinite use of expired fixed-rate terms.

At that point, the borrower owes the fixed amount earned through the contractual term, plus additional interest from maturity onward at an elevated rate (fixedRate + PENALTY_FEE_BPS).