> For the complete documentation index, see [llms.txt](https://docs.grace.loans/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.grace.loans/grace/loss-distribution.md). # Loss distribution Whenever Grace experiences a loss, the protocol distribute the loss equally among lenders. If any borrower gets liquidated to a point where their remaining collateral value is near 0 while they still owe some debt, the protocol writes off their remaining debt and instantly distributes that loss among the current lenders. This solves the problem of equal loss distribution and removes the incentive of bankruns after the loss because by the time lenders may consider exiting, there’s not any downside left to staying in the pool, there’s only potential upside in the form of future interest. Even if some lenders still try to exit at once, they will no longer increase the loss of the remaining lenders because the loss has already been distributed at that point. Additionally, new lenders are able to enter the pool without sharing the previous losses of existing lenders. The protocol can continue to serve both borrowers and lenders normally after experiencing any amount of loss, giving it a much better chance of eventually recovering the loss using future interest. --- # 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.grace.loans/grace/loss-distribution.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.