Palladium is an element originally used by Howard Stark on the Arc Reactor powering the Stark Industries Headquarters.
Tony Stark also used it originally for his miniaturized arc reactor, but when it began to poison and slowly kill him, he replaced it with a new element he managed to synthesize using his father's old notes.
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Tony Stark's design of the reactor in his chest required a heavy element such as palladium to keep it running. Unfortunately, palladium was continuously eroded by the neutron bombardment, and released deadly poisons into Tony's bloodstream. As he came to understand that his demise was at hand, he began giving his possessions away, including appointing Pepper Potts as the CEO of Stark Industries and allowing Rhodey to "steal" the Mark II Iron Man suit and take it back to the U.S. military.
It wasn't until S.H.I.E.L.D.'s intervention that Tony's poisoning symptoms were temporarily reverted, and he was set on the trail to find his father, Howard Stark's design for a new element to replace the palladium. Building a small particle accelerator in his garage, Tony was finally able to create a new element that met his needs and in turn created a brand new suit to utilize the new power.
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