Liquidation

Threshold

A position is liquidatable when its margin usage reaches 80% margin usage.

equity = margin + P&L − funding owed
usage  = (margin − equity) ÷ margin

P&L is measured at the vAMM exit value, the HYPE that closing the position would actually return. The trade page shows usage on every position and marks it liquidatable when it crosses the line.

Who liquidates

Anyone. liquidate(positionId) is public. The trade page lists liquidatable positions on that market with a liquidate key.

Where the margin goes

1. The liquidator receives 0.5% of margin of the position margin.
2. The trader's loss goes to the Pit, out of the remaining margin.
3. Whatever margin is left goes to the market's insurance fund.

If the loss is larger than the remaining margin, the position ended with bad debt. The market's insurance fund pays the difference to the Pit, as far as it can. Any uncovered amount is emitted in the PositionLiquidated event.

Insurance fund

Each market has its own insurance fund, in HYPE. It receives 20% of every fee in that market and the leftover margin of liquidated positions. Anyone can add to it.

It pays for bad debt, and it tops up profit payouts if the Pit ever holds less HYPE than a winning trader is owed.

Partial and full

Liquidation is full on the testnet: the whole position closes. Partial liquidation, which closes only enough to bring usage back under the line, is not implemented. Adding margin before the threshold is the way to keep a position open.