Bad Debt Buffer

Peapods’ LP-based collateral structure introduces inherent protection against insolvency. Because 50% of each LVF position is composed of the paired asset (e.g., USDC), this portion is automatically seized by the liquidator and used to directly repay part of the debt.

For a liquidator to be financially incentivised to execute a liquidation, the remaining debt including the 10% liquidation bonus must be recovered by selling the volatile side (pTKN) since the other half of the position is already secured as the debt asset.

This structure creates a built-in price buffer: the pTKN price can fall significantly during liquidation while still allowing the system to fully repay the liquidator and avoid any bad debt.

Example: Price Tolerance at Liquidation

Position Value	$2,000
Paired Asset	$1,000 (seized directly)
pTKN	10 tokens @ $100 = $1,000
Debt at 83.33% LTV	$1,666.60
Liquidator Payout (110%)	$1,833.26
Amount to Recover via pTKN	$833.26
Required Average pTKN Price	$83.33
Lowest Wick (linear model)	$66.66
Max Drop from $100	33.34%

📌 Assuming liquidation occurs at the 83.33% LTV threshold, pTKN can fall by up to 33.34% to a low of $66.66 during a linear liquidation without incurring any bad debt and whilst still providing the 10% liquidator reward.