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Bound term loans are coordinated through PSBTs and enforced by Bitcoin Script.
At origination, the borrower, lender, and Bound sign a single Bitcoin transaction. The transaction coordinates the loan legs together:
The borrower locks BTC into escrow.
The lender provides bUSD.
The borrower receives the agreed bUSD loan amount.
Any origination fee is settled as part of the same transaction.
Because origination is atomic, either every transfer settles together or the transaction does not complete.
The BTC collateral sits in a 2-of-2 multisig escrow with a timelock. The escrow has two spending paths:
Repayment path
During the term and grace period
Borrower plus Bound or lender
Borrower repays and receives BTC back
Default path
After the grace period
Lender
Lender claims the BTC collateral
During the term, the borrower must be a signer for the BTC to move. Bound cannot move collateral by itself.
There are two ways a loan resolves:
Repayment - the borrower repays principal plus interest and receives the escrowed BTC back.
Walk-away - the borrower does not repay by the end of the grace period, keeps the borrowed bUSD, and the lender claims the BTC.
The walk-away outcome is what removes price-based liquidation from the loan. The loan state is based on time and repayment, not BTC market price.
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