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.

Liquidation Clearance Fee

A Liquidation Clearance Fee is charged when a leveraged position is forcibly closed (liquidated). This fee is deducted from the margin that remains after the position is closed.

No fee is charged if a position is bankrupt (i.e., the remaining margin is zero or negative). The current fee is set at 1.25% of the position’s notional value.

• Formula: Liquidation Clearance Fee = Notional Value × 1.25%

Risk & Responsibilities

• Proactive Management is Crucial: Traders are strongly advised to actively monitor their margin levels to prevent liquidation. The total loss from a liquidation event can significantly exceed the clearance fee itself.
• Vault Takeover Risk: During extreme market volatility, the protocol vault reserves the right to take over a position at its bankruptcy price to maintain market stability. This price may be substantially less favorable than the market liquidation price and could result in the total loss of the position’s margin.
• Trader’s Sole Responsibility: The trader is solely responsible for monitoring their positions. While the platform may issue courtesy notifications (e.g., margin calls), their timely delivery is not guaranteed. Relying on these alerts is not a substitute for active risk management.