Liquidations
The VDEX liquidation engine will close positions once account equity falls below the maintenance margin. The maintenance margin is half of the initial margin at maximum leverage. A detailed list can be found in contract specifications.
If account equity or isolated margin falls below the maintenance margin, the liquidation engine executes a market order to close the full position. During liquidations, any remaining collateral remains with the trader. VDEX does not charge clearance fees.
Backstop liquidations occur if equity falls below two-thirds of the maintenance margin before successful liquidation. During backstop liquidations, the Virtual Market Maker acquires unliquidated positions and remaining margin. This ensures that VDEX remains solvent when volatility and clustered liquidation prices cause liquidation cascades.
Within the margin mode that is backstop liquidated, the user ends up with zero account equity. Backstop liquidations in isolated margined positions do not affect other positions.
Liquidations are based on the mark price, which combines the VDEX order book with external exchanges for maximum stability. During times of high volatility, the mark price may diverge significantly from the VDEX order book. Users may observe the trading chart, reflecting the mid price, exceed liquidation prices without liquidation and vice versa.
Risk Management
To avoid liquidations and backstop liquidations, traders are encouraged to set stop loss orders and actively monitor open positions. Higher leverage factors increase the risk of liquidation.
Partial Liquidations
For positions larger than $10,000, only 20% of the position will be liquidated at a time. If a position is partially liquidated twice within 30 seconds, the entire position will be closed and equity is retained by the user.
Account Liquidations
VDEX uniquely supports Volatile Asset Collateral (VAC) at face value for account margining. VAC is denominated in their original form without swapping.
For example, a user deposits 1 Bitcoin when $BTC = $100,000, so they have $100,000 margin. If $BTC increases to $110,000, then margin updates proportionally to $110,000.
To support maximum flexibility—including delta-neutral hedging and funding arbitrage—PnL is denominated in USDT and losses are not immediately deducted from VAC.
Consider that the user accumulates losses of $11,000. Collateral is stored as (1 BTC, -11,000 USDT). If the user withdraws immediately, 0.1 BTC is swapped for 11,000 USDT, releasing 0.9 BTC. However, if $11,000 was regained through trading or USDT deposits, collateral becomes (1 BTC) not (0.9 BTC, 11,000 USDT).
This introduces the possibility that VAC value may fall below USDT-denominated losses. Account liquidations trigger automatic swapping from VAC to USDT once account equity falls below this threshold.
VDEX executes an account liquidation if 1.1*losses > VAC or when BTC declines from $110,000 to $12,100.
Formulas
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