#Liquidations

Liquidations are a necessary mechanism to maintain protocol solvency. Exolane's liquidation system is designed to be fair and non-punitive.

#What is Liquidation?

Liquidation occurs when a position's margin falls below the maintenance margin requirement. The position is forcibly closed to prevent losses from exceeding collateral.

If: Effective Margin < Maintenance Margin
Then: Position can be liquidated

#Key Features of Exolane Liquidations

#✅ No Liquidation Penalty

Unlike most exchanges, Exolane charges 0% liquidation penalty.

#✅ Remaining Collateral Returns to You

If any collateral remains after closing, it stays in your account.

#✅ Only Gas Costs Reimbursed

Liquidators only receive reimbursement for gas costs. No bounty, no penalty extraction.

#When Does Liquidation Occur?

#Margin Health Formula

Margin Ratio = Effective Margin / Required Maintenance Margin

If Margin Ratio < 1.0 → Liquidatable

#Effective Margin Calculation

Effective Margin = Collateral + Unrealized PnL

#Example:

Position: 0.1 BTC long at $100,000
Collateral: $1,000
Maintenance Margin Rate: 2.5%
Required Maintenance: $10,000 × 2.5% = $250

Scenario 1: BTC at $95,000
  Unrealized PnL: -$500
  Effective Margin: $1,000 - $500 = $500
  Margin Ratio: $500 / $250 = 2.0 ✅ Safe

Scenario 2: BTC at $92,000
  Unrealized PnL: -$800
  Effective Margin: $1,000 - $800 = $200
  Margin Ratio: $200 / $250 = 0.8 ❌ Liquidatable

#Liquidation Price

Your liquidation price is shown on your position. This is the price at which you become liquidatable.

#For Long Positions:

Liquidation occurs when price falls to your liquidation price.

#For Short Positions:

Liquidation occurs when price rises to your liquidation price.

#Approximate Formula (Long):

Liq Price ≈ Entry Price × (1 - (Collateral / Position Value) + Maintenance Rate)

#Example:

Entry: $100,000
Position: $10,000 notional
Collateral: $1,000 (10x leverage)
Maintenance: 2.5%

Liq Price ≈ $100,000 × (1 - 0.10 + 0.025) = $92,500

#Liquidation Process

#Step 1: Margin Falls Below Requirement

• Price moves against your position
• Effective margin drops below maintenance

#Step 2: Position Becomes Liquidatable

• System marks position as liquidatable
• Any keeper can now liquidate

#Step 3: Keeper Triggers Liquidation

• Liquidator bot calls the liquidation function
• Position closes at current oracle price

#Step 4: Settlement

• Position PnL is realized
• Remaining collateral (if any) stays with user
• Keeper receives gas reimbursement

Before Liquidation:
  Position: 0.1 BTC long
  Collateral: $200
  Unrealized PnL: -$800
  Effective Margin: $200 (below $250 maintenance)

After Liquidation:
  Position: Closed
  Realized Loss: $800
  Remaining Collateral: $200
  Returned to User: $200

#What Happens to Your Funds?

#If Collateral Remains:

The remaining collateral stays in your account.

Example:
  Collateral: $1,000
  Loss at liquidation: $800
  Remaining: $200 (yours to keep)

#If Position Goes Underwater:

If losses exceed collateral, the protocol absorbs the bad debt. You lose your collateral but owe nothing more.

Example:
  Collateral: $1,000
  Loss at liquidation: $1,200
  Your loss: $1,000 (capped)
  Protocol absorbs: $200

#Avoiding Liquidation

#1. Use Lower Leverage

Lower leverage = liquidation price further away

#2. Set Stop-Losses

Close your position before liquidation.

If your liquidation is at $92,000:
  Set stop-loss at $93,000
  Exit before forced liquidation

#3. Add Margin

If your position is at risk, add collateral.

Before: $500 margin, liq at $95,000
Add: $500
After: $1,000 margin, liq at $90,000

#4. Reduce Position Size

Smaller position = lower required margin

#5. Monitor Margin Health

Keep positions in the "healthy" zone (>2x maintenance)

#Liquidation vs. Stop-Loss

#Margin Health Indicators

Monitor your margin health in the UI:

#Oracle Protection

Liquidations require a fresh oracle price:

• Oracle must be within 40 seconds of current time
• If oracle is stale, liquidations are paused
• Prevents liquidation on bad/manipulated prices

This protects you from:

• Flash crashes on illiquid venues
• Oracle manipulation attacks
• Stale price exploitation

#After Liquidation

After being liquidated:

1. Position is gone — You're out of the market
2. Remaining funds stay — Any leftover is yours
3. No debt — You don't owe anything
4. Can trade again — Deposit more and open new positions

#Liquidation FAQ

#Q: Why was I liquidated even though price recovered?

Once price touches your liquidation price and a keeper acts, liquidation is final. The later recovery doesn't undo it.

#Q: Why is there no liquidation penalty?

The liquidation fee parameter is currently set to zero on all markets. Liquidations are intended to maintain system solvency, not to add punitive costs. The parameter is configurable per market — the current zero setting can be verified on-chain.

#Q: Can I avoid liquidation by paying more gas?

No. Liquidation triggers when margin requirements fail, regardless of what you do.

#Q: Is there partial liquidation?

Currently, liquidations close the entire position. Partial liquidation may be added in future versions.

#Summary

#Next Steps