Liquidation

The liquidation mechanism plays a pivotal role in margin trading, exerting a direct influence on the health and prosperity of the market.

Monitoring

Liquidations on Mount Exchange are processed through smart contracts. The monitoring process involves several key steps:

  1. Collect Key Market Parameters: Gather essential data from the contract market, such as the maintenance margin rate.

  2. Retrieve Active Positions: Identify the current positions held within the market.

  3. Obtain Mark Price Data: Access real-time price information from on-chain oracles.

  4. Evaluate Liquidation Triggers: Calculate whether the positions meet the criteria for liquidation.

  5. Initiate Liquidation: If the conditions are met, liquidation is processed through the relevant smart contracts.

Executor

Liquidation Execution:

  • Upon receiving a liquidation request, an evaluation is conducted to determine if the conditions for liquidation have been met.

    • If the conditions are not met, a response is issued indicating that liquidation cannot proceed.

    • If the conditions are met, the system immediately checks liquidity availability via the Router.

      • If sufficient liquidity is present, the order is executed through the Router.

      • If liquidity is insufficient, the ADL (Auto-Deleveraging) Manager steps in to facilitate order matching across multiple counterparties, ensuring the necessary liquidity is met.

  • After successful liquidation, users are notified (if they have linked their email).

  • Rewards are distributed to those who initiated the liquidation, either in real-time or cumulatively, based on past performance.

Abnormal Liquidation

Abnormal liquidations can occur due to delays or extreme price volatility, leading to positions being liquidated at a net value that results in bad debt within the USD ledger. In such cases, corrective measures are taken:

  • Inject Funds from the Insurance Fund: Funds are transferred from the Insurance Fund to cover the bad debt.

  • Eliminate Bad Debt: Negative balances are adjusted to zero, allowing the user to resume normal trading.

  • Insufficient Insurance Fund: If the Insurance Fund cannot fully cover the bad debt, the following mechanism may be applied:

    • Proportional Splitting Mechanism: The remaining debt is distributed proportionally among traders in the pool who have made a profit, sharing the cost.

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