Liquidations

MuchFi's liquidation system protects protocol solvency by triggering when margin falls below safety thresholds. The mechanism operates differently for cross-margin and isolated-margin accounts, using mark prices for all checks.

Liquidation Types

MuchFi enforces three liquidation categories:

Standard Liquidation

Triggered when:

Account Equity < Account Maintenance Margin Total

Backstop Liquidation

Activated when only 1/3 of maintenance margin remains. Used when standard liquidation cannot complete at acceptable prices.

Auto-Deleveraging (ADL)

Engaged when the Insurance Fund cannot cover bad debt. Matches underwater positions with profitable counterparties.

Standard Liquidations

When an account becomes undercollateralized, liquidators close positions incrementally through transactions.

Process

1. Liquidator specifies account, position, units to close, and execution price
2. Execution occurs on the standard order book
3. Partial fills allowed if min_fill_ratio threshold is met; otherwise transactions revert
4. Remaining positions stay open for subsequent liquidation steps

Margin Distribution

Forfeited margin splits between:

• Liquidator rewards (incentive for liquidation)
• Insurance fund contributions (protocol protection)

Each liquidation step improves the equity-to-maintenance-margin ratio.

Backstop Liquidations

If standard book liquidity proves insufficient at acceptable prices, the system escalates to backstop liquidations.

Characteristics

• Routes through alternative liquidity sources (vaults, market makers)
• No taker fees applied
• Execution occurs on the backstop order book
• Partial fills follow the same min_fill_ratio guard
• Full position margin forfeiture upon execution

Keeper Incentives