Calculating Liquidation Price

The liquidation price represents the threshold at which a trader's position is automatically closed (liquidated) to prevent further losses. To calculate the liquidation price, the following factors are considered: Max Leverage, Unsettled Obligations, and Maintenance Threshold.

Components of Liquidation Price Calculation

  • Max Maintenance Leverage: 200x (Crypto), 400x (Synthetic Assets), 100x (Solana Beta Assets), 50x (Meme tokens)

  • Unsettled Obligation: The sum of fees owed by the position to the trading pool. These fees consist of two components: a static close position fee and a dynamic margin fee associated with borrowing exposure to the asset. It is reflected as a reduction in collateral amount by the Trader that is holding the position irrespective of price action.

  • Minimum Maintenance Margin: Calculated as the product of nominal size of the position (in USD) and the minimum maintenance margin ratio (1 /Max Leverage). This threshold is a critical level that when the amount of collateral crosses it then the liquidation process can be triggered.

  • Liquidation Price: The price at which a Trader's position will be liquidated. Any remaining maintenance margin is not returned to the trader.

The Liquidators:

Initially, the Flash.Trade team will be running a liquidation bot that is continuously monitoring all positions on Flash.Trade ensuring all positions are promptly liquidated when they exceed max leverage. Flash's margining engine does not require an insurance fund since there will always be liquidity available in the pool to close against. Additionally, the protocol does not require external liquidator capital to settle positions due to the nature of protocol being asset-backed for each position and thus positions will always have the counterparty to settle against. The fact that the pool is used to close against for liquidations this should prove to be another source yield for liquidity providers.

Last updated