Liquidations (LVF)

Liquidation is the mechanism by which the protocol reclaims borrowed funds when a user’s position becomes too risky. In Peapods, all leveraged positions are backed by LP tokens containing both a volatile asset (pTKN) and a paired base asset. This collateral model enables a safer liquidation process whereby half of the position already consists of the required debt asset to be repaid. This protects both lenders and borrowers from excessive downside during the liquidation process.

By enforcing a conservative 83.33% Loan-to-Value (LTV) threshold, Peapods ensures that positions are liquidated before they become undercollateralized. Liquidators are economically incentivized to repay debt in exchange for discounted collateral, while borrowers retain any remaining equity after the position is resolved. The use of paired-asset LPs creates natural buffers that allow the system to absorb volatility without generating bad debt.

Liquidators may carry out a partial liquidation in which they choose to liquidate only a portion of the position if full liquidation would be unprofitable due to slippage. The remaining collateral can be unwound in follow-up transactions once price stabilizes or arbitrage corrects the market.

Since part of the debt is always covered by the stable paired asset, the protocol remains solvent even if pTKN experiences moderate post-liquidation price slippage.