Liquidation Model

What Is Liquidation?

Liquidation is an automatic protective mechanism. It closes your position when your collateral falls below the required Maintenance Margin threshold. This is necessary to ensure the solvency of the protocol and protect Liquidity Providers from traders going into negative equity.

Liquidation Fee Structure

The liquidation fee is calculated as a percentage of your total position size (not just your collateral). This fee incentivizes liquidators (keepers) to maintain the protocol's solvency.

Liquidation Fee = Position Size × Liquidation Fee Factor

Fee Factors by Market Type

Market Type	Liquidation Fee
Crypto Markets	0.20% - 0.30%
Synthetic/Forex Markets	0.30% - 0.45%
Commodity/Index Markets	0.45%

Fee Distribution

When liquidation occurs, the fee is split between:

Recipient	Share
Fee Receiver (Protocol)	37%
Liquidity Pool	63%

The pool portion helps compensate for potential losses from the liquidated position.

Example Calculations

Example 1: ETH Long Position

Position Size:  $100,000
Leverage:       10x
Collateral:     $10,000
Fee Factor:     0.30%

Liquidation Fee = $100,000 × 0.30% = $300

If liquidated, $300 is deducted from your remaining collateral, plus any unrealized losses.

Example 2: BTC Long Position

Position Size:  $500,000
Leverage:       50x
Collateral:     $10,000
Fee Factor:     0.45%

Liquidation Fee = $500,000 × 0.45% = $2,250

If liquidated, $2,250 is deducted from your remaining collateral.

Important Notes

• Fee is taken from remaining collateral: You cannot lose more than your initial margin in cross-margin mode; your entire USDC balance backs all positions.

• Fee is fixed per market: It does not change based on leverage level, though higher leverage makes the fee larger relative to your margin.

• Oracle-driven liquidation: Liquidations occur at fair market prices, protecting traders from unfair liquidation prices.