In the world of leverage trading, liquidations are a critical aspect of risk management. Here's how we handle them:
Determining Liquidation Threshold: To strike a balance between user fairness and risk mitigation, our liquidation threshold is set at -70% of user funds concerning a price decrease. This threshold was chosen to ensure that neither users nor the team assume undue risk. If set too low, it wouldn't be equitable to users, and if set too high, it could expose the team to excessive risk due to price volatility. Some basic calculations for liquidations are as follows:
2x - 35% price decrease on initial
3x - 24% price decrease on initial
4x - 18% price decrease on initial
5x - 14% price decrease on initial
10x - 7% price decrease on initial
Automatic Liquidation Process: When a liquidation event occurs, the bot springs into action. It automatically initiates the sale of the user's position in an attempt to recoup the borrowed funds provided by the team. The proceeds are then returned to the leverage pool, ensuring the continued stability of the trading ecosystem.
User Notification: In the event of a liquidation, users are notified. This transparent communication empowers users to stay informed about the status of their positions.
Mitigating Total Loss: Stop-loss mechanisms are available to users to mitigate the risk of total liquidation. It is always encouraged for users to carefully consider and set these levels to align with their risk tolerance and understanding of the volatile nature of the DeFi landscape.
Our approach to liquidations prioritizes fairness and risk management. It combines a carefully selected liquidation threshold with an automatic process that seeks to protect both users and the integrity of our leverage trading ecosystem. Users are encouraged to utilize stop-loss features and exercise caution, bearing in mind the dynamic nature of the DeFi landscape.