Liquidation Engine

Introduction

In the event that a user’s Account Margin Rate falls below the Maintenance Margin Rate, an account will begin the process of auto-liquidation. The liquidation engine on AscendEX Futures will take the following actions: 

1. Prepare Account for Liquidation

2. Reduce Account Positions via Smart Order Routing

3. (if necessary) Sell Account’s Positions to Backstop Liquidity Providers (“BLPs”)

4. (if necessary) Sell Account’s Positions to users with top-10 largest opposing positions (“Auto-deleveraging”)

5. Relinquish Account Control back to User

Details of each of the above actions are outlined below.

Stage 1: Prepare Account for Liquidation

1. All open orders held are canceled

2. All withdrawals and trading are disabled

3. Auto-roll from Unrealized PnL to Realized PnL is halted

4. All non-USDT collateral is converted to USDT using the Collateral Discount Factor

Stage 2: Reduce Account Positions

1. Volume-limited orders to liquidate contracts are submitted to reduce the account’s position exposure.

2. If the Account Margin Rate does not exceed the Maintenance Margin Rate after the maximum number of liquidation attempts (roughly 50 rounds of orders), the account will be taken over (Stage 3).

Key Considerations:

1. If the Account Margin Rate exceeds the Initial Margin Rate at any point in the position reduction process, contract liquidation is halted, and the liquidation engine relinquishes control of the account back to the user (Stage 4).

2. If the Account Margin Rate falls below the Takeover Margin Rate at any point in the position reduction process, the account will be taken over (Stage 3).

3. The velocity of the position reduction process, as well as the size of each block of liquidation orders, are designed to minimize market impact and therefore mitigate risk associated with price capitulation caused by the liquidation (i.e., “slippage” induced by the liquidation orders).

Stage 3: Takeover Account

1. 100% of the account’s positions are taken over by AscendEX Futures. The price at which each contract is taken over is the Zero Price, or the price that would set Account Value to $0. This is sometimes referred to as “bankruptcy price.”

2. AscendEX Futures will sell the account’s positions to Backstop Liquidity Providers (“BLPs”) in accordance with their per-minute and per-hour capacity. For further information, please see the Backstop Liquidity Provider section .

3. If the capacity of the BLPs is insufficient , the remaining contracts will be given to accounts with the top-10 largest opposing positions, in proportion to their position size. This process is referred to as “auto-deleveraging.” 

Key Considerations:

1. Each contract that is sold to BLPs or given to accounts via auto-deleveraging is priced via the Takeover Price.

2. In the event an account is taken over and its account value > $0, BLPs and the Insurance Fund will share the account’s positive balance based on the BLPs’ “Takeover Balance Share Ratio.”

3. In the event an account is taken over and its account value < $0, BLPs and the Insurance fund will cover the account’s negative balance based on the BLPs’ “Worst Price Deviation.”

4. In the event an account is taken over and its account value < $0, and the Insurance Fund is empty, the platform will exercise clawbacks as a means to socialize platform losses. Clawbacks will only draw from accounts with positive unrealized PnL.

Stage 4: Complete Account Liquidation

1. Withdrawals and trading reenabled

2. Auto-roll from unrealized PnL to realized PnL is resumed

See the below flowchart illustrating the account liquidation process:

Liquidation Flowchart