> For the complete documentation index, see [llms.txt](https://docs.pyron.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.pyron.fi/pyron/borrowing/liquidation.md).

# Liquidation

Liquidation within Pyron is primarily a safety mechanism designed to protect the protocol and its users. When a borrower’s account falls below a predefined safety threshold, as determined by the Pyron protocol, the account becomes subject to liquidation.

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### How Liquidation Works <a href="#how-liquidation-works" id="how-liquidation-works"></a>

Triggering Liquidation: If the health factor of a borrower’s account drops below the safety threshold, the account is exposed to liquidation. The health factor is a measure of the account’s collateral relative to its liabilities, and falling below the threshold indicates that the borrower’s positions are no longer adequately collateralized.

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### Liquidation Process:  <a href="#liquidation-process" id="liquidation-process"></a>

Pyron employs a partial liquidation approach to restore the borrower’s account to a healthy state. Only the minimum amount of the borrower’s collateral necessary to bring the health factor back to 1 is liquidated. This approach minimizes the impact on the borrower while ensuring the stability of the protocol.

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### Liquidation Penalty: <a href="#liquidation-penalty" id="liquidation-penalty"></a>

Borrowers subject to liquidation incur a 5% penalty on the liquidated portion of their collateral. This penalty is split equally between the liquidator and the Pyron protocol’s insurance fund:

* Liquidator Fee: 2.5% of the liquidated collateral is awarded to the liquidator, a third-party entity that executes the liquidation process.
* Insurance Fund Contribution: 2.5% of the liquidated collateral is allocated to the asset-specific insurance fund within Pyron, which helps safeguard the protocol against future risks.

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### Automatic and Permissionless Process <a href="#automatic-and-permissionless-process" id="automatic-and-permissionless-process"></a>

Liquidations in Pyron are automatic and permissionless, meaning they are carried out by third-party liquidators without needing any intervention from the borrower or the protocol administrators. These liquidators are incentivized with a fee for successfully executing liquidations, ensuring that the process is efficient and timely.

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### Configurable Penalties and Fees <a href="#configurable-penalties-and-fees" id="configurable-penalties-and-fees"></a>

Currently, the liquidation penalties, liquidator fees, and contributions to the insurance fund are fixed, but they can be configured for each asset pool:

* Liquidation Penalty: 5% of the liquidated collateral
* Liquidator Fee: 2.5% of the liquidated collateral (half of the liquidation penalty)
* Insurance Fund Fee: 2.5% of the liquidated collateral (half of the liquidation penalty)

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Pyron’s liquidation model is designed to protect both borrowers and the protocol by restoring account health through a controlled and incentivized process. By maintaining a healthy buffer above the liquidation threshold, borrowers can minimize the risk of liquidation and protect their positions.