Liquidation

Liquidation exists to protect the integrity of the platform and ensure that losses from under collateralized positions do not spread systemic risk to other participants.

Liquidation is triggered when the margin balance is insufficient to meet the maintenance margin requirement, based on the mark price. Mark price is used instead of the last traded price to prevent manipulation and ensure fair risk assessment.

Maintenance margin = Notional Value × Maintenance Margin Ratio, based on the current mark price and the trader’s position size tier.

Liquidation Process

For Small Positions (Tier 1 and Below)

1. IOC Order at Bankruptcy Price: The entire position is submitted as an Immediate-Or-Cancel (IOC) order at the bankruptcy price.
2. If Fully Filled: Liquidation is complete. The position is closed, and remaining collateral (if any) is forfeited.
3. If Not Fully Filled: The vault takes over the remaining position and assumes custody of the user’s margin.
4. If Vault Capacity Is Reached: When the vault cannot absorb more risk due to position limits, the system triggers Auto-Deleveraging (ADL) to offset risk.

For Large Positions (Tier 2 and Above)

1. Step-by-Step Liquidation: The system liquidates the position in tiers, starting from the highest tranche.
2. Partial IOC Orders: After each partial IOC order, the system checks whether the remaining margin meets the maintenance requirement.
3. If Margin Recovers: The liquidation stops immediately.
4. If Not: The system proceeds to the next tranche until the full position is closed or margin is restored.

Smaller positions are likely to be fully liquidated with total loss of margin, while larger positions may incur significant capital loss even during partial liquidation. We strongly recommend that users proactively monitor their positions and apply sound risk management practices to avoid liquidation scenarios.