# Liquidation

## NFT Leverage

At Pawnfi, we understand that borrowers may be vulnerable to liquidation risks caused by price volatility during the loan period. That's why we designed our NFT Leverage module to eliminate this risk. As a result, when borrowers borrow P-Token against their NFT, they can rest assured that they won't be liquidated due to market fluctuations during the loan period.

If borrowers repay the calculated P-Token amount before the loan expiration date, they can retrieve their NFT. However, if they miss the deadline, they will enter a grace period before liquidation. The grace period is equal to the loan duration multiplied by 0.2. For example, if the loan duration is 30 days, the borrower has until the 36th day to repay the loan before liquidation occurs. Please note that interest will still accrue during the grace period.

At Pawnfi, we prioritize the security and convenience of our users. Our NFT Leverage module offers flexible loan terms and eliminates the risk of liquidation, making it a reliable option for borrowers looking to leverage their NFTs.

The liquidated NFT will be directly sent to "NFT Vault" for trading. See [Flash Trade](/getting-started/understanding-pawnfi/pawnfi-modules/flash-trade.md) for more details.

## Consignment

Consignment has the same liquidation logic as NFT Leverage. Sellers must pay back the upfront payment and custody fee before the grace period ends.

The consigned NFT will also be liquidated if the seller does not pay back on time, and it will be directly sent to "NFT Vault" for trading.

<figure><img src="/files/YyQJigs7MpkVrgv0mgZR" alt=""><figcaption></figcaption></figure>

<figure><img src="/files/TDEANHhQSMjwJsSvuQdN" alt=""><figcaption></figcaption></figure>

## Lending Market

For each user/ account, liquidation can be triggered when Borrow Limit Used exceeds 100%.

{% hint style="info" %}
Borrow Limit Used = Outstanding Debt in USD/ Borrow Limit in USD x 100%
{% endhint %}

{% hint style="info" %}
Borrow Limit = Σ Amount of **Token i** x Price of **Token i** x Collateral Factor of **Token i**
{% endhint %}

At Pawnfi, anyone can trigger liquidation to ensure the integrity of our platform. When liquidation is triggered, liquidators can help repay any borrowed tokens. However, to protect borrowers from losing all their positions, we limit the amount that can be liquidated to 50% of their debt.

Liquidators can choose any borrower's collateral and receive an additional value as a liquidator's reward for repaying the debt. However, it's important to note that 2.8% of the seized collateral value will go to the platform's reserve as a liquidation penalty. Therefore, for each $100 worth of debt cleared, $108 worth of collateral/supplied assets will be deducted from the borrower's account and become exclusive benefits for liquidators and the platform.

<figure><img src="/files/jJQPz9hcxtviNIBufs4S" alt=""><figcaption></figcaption></figure>

### Scenario of Supplying NFT

If a borrower uses NFT as collateral and it's circulating in the corresponding P-Token format, they won't immediately lose the NFT if liquidation occurs. Instead, they can still withdraw their NFT after topping up the corresponding P-Token.

However, the borrower's NFT will still be liquidated if the position falls below the threshold. At Pawnfi, we prioritize the security and convenience of our users, which is why we designed our platform to protect borrowers from losing their collateral immediately in case of liquidation.

{% hint style="info" %}
Corresponding P-Token position < \[(Supplied NFT amount x 1000) - 700]
{% endhint %}

When liquidating NFTs, we prioritize borrowers' preferences by following the order they customize in our interface. The liquidation process will pause if the P-Token position exceeds \[(Supplied NFT amount x 1000) - 700]. After that, liquidated NFTs will be sent directly to the "NFT Vault" for trading.

Here is an example:

1. Alice supplied 2 BYAC (X and Y) as collateral to borrow a certain amount of ETH.
2. 2 BAYC is protected in Pawnfi Protocol's smart contract, and there are 2,000 P-BAYC showing on Alice's position.
3. If Alice gets liquidated and there are only 1,500 P-BAYC in her position, she will not lose her NFT at this moment because **1,500 > 2 x 1,000 - 700 = 1,300**&#x20;
4. However, she can only withdraw 1 BAYC because she needs more P-BAYC to withdraw both. She will need to top up 500 P-BAYC to withdraw the remaining one.
5. That is to say, if liquidation happens again and there are only 1,100 P-BAYC on her position, if she placed X as the first order, X would be liquidated and sent to "NFT Vault." Y will not be liquidated as now 1,100 > 1 x 1,000 - 700.
6. Even though BYAC is liquidated, Alice can still use the remaining P-BAYC as collateral or even withdraw to trade elsewhere.
7. One thing different about Pawnfi is that even liquidation status cannot be rolled back, there is a likelihood that borrowers could retrieve their NFTs within Pawnfi. As all liquidated NFTs will be directly sent to NFT Vault, borrowers can interact with Flash Trade, where they will be offered a chance to get back the original NFT with 1:1000 P-Tokens.

<figure><img src="/files/OnO6D6KxpSip7Uwm0NXi" alt=""><figcaption></figcaption></figure>


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