# Liquidated Damages

Borrowers in default are subject to [liquidated damages](https://docs.term.finance/term-repos/terminology#liquidation-penalty) (a surcharge), which is applied to any debt covered in liquidated and collected in collateral tokens. Liquidated damages are split between liquidators (typically 5.2%) as a liquidation incentive and the protocol (protocol liquidated damages, typically set at 2.8%).

<details>

<summary>Liquidated Damages Example</summary>

* Liquidated Damages = 8%
* Protocol Liquidated Damages = 2.8%
* Liquidation Incentive = 8% - 2.8% = 5.2%
* Repurchase Exposure covered in liquidation = 100,000 USDC
* Markt price of (USDC) based on price oracle = $1.01
* Market value of (ETH) based on price oracle = $1,800

Fair Value Liquidation = 56.111 ETH = 100,000 USDC \* 1.01 USD/USDC / (1,800 USD/ ETH)

Liquidated Damages = 4.4889 ETH = 8% \* 56.111 ETH&#x20;

Liquidation Incentive = 2.9178 ETH = 5.2% \* 56.111 ETH&#x20;

Protocol Liquidated Damages = 1.571 ETH = 2.8% \* 56.111 ETH

Total Collateral Liquidated = 60.6 ETH

</details>


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