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LienTokens are tokenized debt positions created and held by Vaults upon loan origination. Each LienToken contains relevant information for the loan it represents (see Loan Terms). When a lien is fully paid off, its LienToken is burned.

LienTokens may be purchased for a reserve amount that is equal to the remaining debt on the lien with an additional penalty to compensate the gas costs of loan origination.

LienTokens have a payee field that is initially set to the LienToken owner (its Vault). The payee receives all loan payments, as well as auction funds if the underlying collateral is liquidated. If auction funds need to be paid out to withdrawing liquidity providers for a PublicVault, payee is permanently set to the address of a WithdrawProxy for the current epoch.


When the underlying collateral for a LienToken is liquidated, recovered auction funds are repaid in order of seniority. The first LienToken must be fully paid back from auction before the second LienToken may begin receiving funds, and so on, until there are no funds remaining. Any excess funds after all LienTokens have been paid back are returned to the initial liquidated borrower.