Liquidation
1. Liquidation Parameters
Liquidators can liquidate positions when the users' debt ratio reaches a threshold level.
We'll go over some definitions first before describing what a "Kill Buffer" is.
Debt Ratio is determined by using the following formula:
Where:
Debt Value is the amount borrowed for leverage. For example: When opening a 3x position with a 100 USDC deposit, the Debt Value is 3 * 100 - 100 = 200.
Total Value is your total position: debt value + equity value.
Liquidation Threshold is the upper limit of a position's Debt Ratio, set as follows:
Pools | Liquidation Threshold | Liquidation Bounty (% of Total Value) | Estimated value return to the farmers (% of position value at liquidation) |
Raydium Pools | 83.3% | 5% | 11.6% |
Orca Pools | 83.3% | 5% | 11.6% |
Thus, Kill Buffer is defined as:
When a position's "Kill Buffer" reaches 0, liquidation triggers:
liquidation bounty (5%) will be paid to the liquidator bot.️
The remaining asset will be directly returned to the user's wallet. Users may receive one or two assets in the liquidity pair. We employ a "minimize trading" option for the remaining assets' return to avoid the adverse effect of liquidation.
2. Liquidation Safety
For secure and fast liquidations, we have designed a 3 step liquidation mechanism:
2.1 Two-Phase Liquidation Model With Positive Liquidation Pool
Liquidation is essential for the safety of the lending pool. We use the Positive Liquidation Pool + Arbitrage interface to execute fast and secure liquidations.
2.1.1 What is a Positive Liquidation Pool
The "Positive Liquidation Pool" is the first line of defense in maintaining system solvency. When liquidations occur, the Positive Liquidation Pool can be used as a source of liquidity to repay the debt. This ensures lending Pool safety.
When the user’s position is liquidated, an amount of USDC corresponding to the remaining debt in the Positive Liquidation Pool is used to repay its debt. Then, the user’s assets are sold, and the debt and liquidation rewards are deducted. The remaining balance is returned to the user.
If the "Positive Liquidation Pool" balance is not enough to repay the debt, liquidators may use their assets to complete the liquidation process.
Liquidators need to stake assets to be qualified as liquidators. The asset is deposited into the "Positive Liquidation Pool". When liquidation happens, the assets in Positive Liquidation Pool are used first, followed by the liquidators'.When the liquidations are completed, the liquidators can share the rewards in the pool.
2.2 Oracle Protection Mechanism
Oracle's price anomaly protection mechanism, which includes:
Protect positions when prices from different data feeds differ by a lot.
Time Weighted Average Price (TWAP)
2.3 Over-loss Cover
Positive Liquidation Pool + Protocol Treasury to cover over-loss.
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