> For the complete documentation index, see [llms.txt](https://docs.powercity.io/litepaper/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.powercity.io/litepaper/earn-lending-protocol/liquidations.md). # Liquidations To ensure that the entire $PXDC supply is always fully backed by collateral, Vaults that fall below the minimum collateral ratio of 110% (known as undercollateralized Vaults) are subject to liquidation. As mentioned earlier, the Stability Pool is funded by Stability Providers who deposit $PXDC tokens. It primarily functions as a "shock absorber". These $PXDC tokens are used to pay off the $PXDC debt of any liquidated Vault, and in turn receive the $PLSX collateral from the liquidated Vault. When a Vault becomes undercollateralized below 110% (due to a drop in the $PLSX price), the debt payable within the Vault ($PXDC) can be immediately offset from the $PXDC tokens in the stability pool. Those $PXDC tokens are burned, and $PLSX from the liquidated Vaults is returned to the stability providers. The system transfers 99.5% of the $PLSX collateral from the liquidated Vaults to the Stability Pool, while paying out the remaining 0.5% to the liquidator. During liquidations, $PXDC tokens in the Stability Pool are replaced by $PLSX. The $PXDC is burned to cover the liquidated loan and the collateral is awarded to the Stability pool. Collateral transferred to Stability Pool is worth more (in USD) than the burned $PXDC tokens at time of liquidation due to liquidation occuring at or near the 110% point. This results in the Stability Pool receiving more in $PLSX than the $PXDC was worth that was burned. It is worth noting that since the liquidations contract is a publicly callable function, these are likely to eventually be performed by users running automated bots and scripts. This means that there might not be much of a grace period once a vault falls below the 110% collateralization ratio. Stability Providers receive shares of the liquidations that occur during the lifetime of their $PXDC deposit in the pool. Due to the system's mechanics, most depositors over time will exit the stability pool with a higher value than their initial deposit, incentivizing Stability Providers to participate in the pool. It's important to note that when a Vault is liquidated, the borrower's collateral value had fallen to nearly the same value of the $PXDC they already obtained. Liquidation in this system is not the same as a leveraged position like you would see on a central exchange, where both the collateral (margin) and the loan amount are lost. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.powercity.io/litepaper/earn-lending-protocol/liquidations.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.