Liquidations

This page explains how SoDEX liquidations work in normal and extreme market conditions. For asset-specific leverage limits and maintenance requirements, see Margin Tiers

Liquidations

Liquidation happens when a trader no longer has enough collateral to support an open position.

On SoDEX, liquidation is based on the relationship between portfolio value and maintenance margin. The maintenance margin requirement depends on the asset and margin tier. Since SoDEX may use different leverage limits for certain assets, the exact maintenance requirement should always be understood together with the Margin Tiers page.

SoDEX uses the mark price for liquidation checks, not the last traded price.

Overview

When a position becomes liquidatable, SoDEX does not immediately transfer it to a backstop liquidator.

Instead, liquidation happens in stages:

1. The system first attempts to close the position by sending market orders into the order book.

2. If that is not sufficient, and the trader's equity falls far enough below the maintenance threshold, the position enters backstop liquidation.

3. In extreme cases where losses exceed portfolio value, the system may rely on auto-deleveraging (ADL) to protect platform solvency.

This staged design helps reduce unnecessary losses for traders and minimizes market disruption.

What triggers liquidation

A position becomes eligible for liquidation when the portfolio margin falls below the required maintenance margin.

The exact check depends on the margin mode:

Cross Margin

Under cross margin, liquidation is based on the trader's total cross portfolio value compared with the total maintenance margin requirement for cross positions.

This means:

• Profits and losses from other cross positions can affect liquidation risk.

• Additional cross collateral can delay liquidation.

• The leverage selected at order entry does not by itself determine the final liquidation price.

Isolated Margin

Under isolated margin, liquidation is based only on the equity assigned to that isolated position compared with the maintenance margin requirement for that position.

This means:

• Other positions do not protect the isolated position.

• Losses on the isolated position are limited to its isolated collateral.

• The effective liquidation price is more directly tied to the margin assigned to that position.

Stage 1: Order-Book Liquidation

Once a position becomes liquidatable, SoDEX first tries to reduce or close it through the public order book using market execution.

If this succeeds and the account returns above maintenance margin, any remaining collateral stays with the trader.

SoDEX does not charge an additional liquidation fee for this order-book liquidation step.

Large Position Handling

If the liquidatable position is larger than 100,000 USDC, SoDEX does not immediately send the full position into the market.

Instead:

• The first liquidation attempt sends only 20% of the position.

• After that, there is a 30-second cooldown.

• If the account is still liquidatable after the cooldown, the system may proceed with further liquidation, including full liquidation if needed.

This approach reduces market impact and lowers the chance of avoidable slippage on large positions.

Stage 2: Backstop Liquidation

If order-book liquidation is not enough, and the trader's portfolio value falls below two-thirds of the maintenance margin requirement, the position becomes eligible for backstop liquidation.

At that point, the position is transferred to the protocol's liquidation backstop mechanism.

This step is intended for situations where normal order-book liquidation is no longer sufficient to safely unwind the risk.

What happens in backstop liquidation

The treatment depends on the margin mode:

Cross Margin

For cross margin positions:

• All cross positions are transferred.

• All cross collateral is transferred with them.

Isolated Margin

For isolated margin positions:

• Only the isolated position is transferred.

• Only the collateral assigned to that isolated position is transferred.

In backstop liquidation, the maintenance margin is not returned to the trader.

Stage 3(Under extreme conditions): Auto-Deleveraging (ADL)

If losses are severe enough that account value becomes negative, SoDEX may use auto-deleveraging (ADL) as a final protection mechanism.

ADL reduces exposure on the opposing side of the market in order to prevent bad debt from spreading through the system.

This is an extreme-case safeguard and is separate from the normal liquidation flow described above.

For more detail, see the Auto-Deleveraging page.

Why liquidation may happen earlier than expected

Traders sometimes expect liquidation to happen only when the last traded price reaches the displayed liquidation price. In practice, that is not always the case.

SoDEX uses the mark price, which reflects both external market conditions and the state of the SoDEX order book. During fast or thin markets, the mark price can move differently from the last traded price.

As a result:

• liquidation can happen before the last traded price reaches the displayed liquidation level,

• the actual exit price may differ from the estimated liquidation price,

• funding payments and PnL from other cross positions can also move the real liquidation threshold over time.

Estimated Liquidation Price

SoDEX shows an estimated liquidation price when a position is opened and while it remains active. This is a useful reference, but it is only an estimate.

The actual liquidation outcome may differ because of:

• mark price movement,

• order-book liquidity,

• funding payments after entry,

• cross-position PnL effects,

• changing maintenance requirements across margin tiers.

The estimated liquidation price can be expressed as:

liq_price = price - side * margin_available / position_size / (1 - l * side)

Where:

• price is the average entry price,

• side is +1 for a long and -1 for a short,

• position_size is the base asset position size,

• l is the maintenance leverage at the liquidation price,

• margin_available depends on the margin mode.

Cross Margin Formula Input

For cross margin:

margin_available = account_value - maintenance_margin

Isolated Margin Formula Input

For isolated margin:

margin_available = isolated_margin

Practical Notes

• Higher position size usually means a stricter margin tier and a higher maintenance requirement.

• Cross margin gives more flexibility, but it also means one position can affect the liquidation risk of another.

• Isolated margin contains risk to a single position, but it can liquidate faster if no extra collateral is added.

• Large positions may be partially liquidated first before any full liquidation attempt.

• Backstop liquidation only applies after order-book liquidation is no longer sufficient.

Risk Warning

Liquidation can happen quickly in volatile markets. Traders should use leverage carefully, monitor margin usage closely, and consider reducing position size or adding collateral before the account approaches maintenance margin.