In variable rate platforms, such as Aave, collateral in the form of more liquid assets tends to have a higher LTV. In fixed-rate fixed-term protocols, such as YieldSpace, using ETH as collateral to borrow Dai requires a LTV of 67%. In the event that the portfolio is underfunded, three scenarios could emerge in the existing protocols: (i) a borrower could top up the collateral asset to stay afloat; (ii) a borrower could return some of the borrowing asset to decrease the LTV; and (iii) the loan could be unwound by a third party such as liquidator if the borrower defaults. A third party unwinds a borrower’s position by paying back the loan, and in return earns certain fees. In cases when a collateral asset is illiquid, fees can be as high as 15% on Aave, representing a significant penalty to defaulting borrowers. This also poses disruption to borrowing/lending activity, as a pre-agreed loan is terminated early.