Settlement

Once a Fixed Token has reached its maturity date, any third party can call the protocol's settleFixedToken function. When called, this function records the exchange rate between the Fixed Token and the Loan Token (e.g., Morpho USDC). For instance, if the exchange rate is 1.05 and a borrower has a 1000 Fixed USDC position, he will need to repay 952.4 Loan Tokens (1000 USDC / 1.05, the equivalent to 1000 USDC in Loan Tokens) to close his loan.

Lender Settlement

After maturity, lenders automatically start accruing the money market variable rate without any interaction. This is because in Tenor, Fixed Token balances are programatically converted to Loan Token balances after maturity.

Borrower Settlement

Post-maturity, borrowers with outstanding Fixed Debt positions start paying the underlying money market interest rate plus a penalty according to a set schedule[ADD LINK]. This incentivizes borrowers to either extend their Fixed Debt to a longer dated pool or to flash swap their position back to the Morpho money market. If the underlying money market is illiquid such that a borrower's account can't be flash swapped, the borrower himself can always repay his position or can wait for the underlying money market to become liquid again.

If a borrower does not repay his debts by extending his borrow position, anyone can settle the borrower's account back to Morpho. In exchange for doing this, the settler will receive the penalty fees paid by the borrower.