Maker Liquidation

  • Updated

A maker's position size is dynamic, determined by the current market price, liquidity and the order range. After opening a liquidity position that is in range (where the current price of ETH = $1500 and the maker enters a range of $1000, $2000), the maker will be short when the price rises and long when the price falls.

As a result, the position size of a maker is always in a state of flux as the the market price fluctuates and traders consume their liquidity to open new positions. When a trader fills a portion of the maker's liquidity order, the trader receives some tokens. Depending on the current market price and the order range, the maker will consequently take on a long or a short position.

Makers can be liquidated before the price goes out of range or after the price goes out of range. The liquidation price for a maker position is calculated in the same way as it is for a taker. To determine the liquidation price for a maker position, you just need to input the position size into the formula here. You can view the current position size via the UI or by querying the contract. 

Liquidation Scenarios

This covers the most typical cases you may face liquidation, but it’s not guaranteed to cover all possible cases.

Borrowed Assets Appreciate

Maker / LP positions can be liquidated if the value of the liquidity exceeds your ability to pay back any borrowed tokens.

If a portion of your liquidity is in base token (e.g. ETH, BTC etc.), you must return these borrowed tokens at the current price when you remove liquidity. If the value these borrowed tokens increases to a point near the value of your collateral, your orders may be liquidated to prevent loss to the exchange.

Position Value Drops

If you open an order and the price goes down, you will end up with a long position in the given asset (takers have sold their base tokens (e.g. ETH, BTC etc.) to you). If the price continues to fall, your PnL may decrease until your account balance is too low to cover the value of your position. Your position may be liquidated to prevent loss to the exchange.

Margin Ratio

Account health is determined using margin ratio. This is the percentage ratio of your liquidity to your free collateral.

Maintenance Margin

This is the minimum margin ratio required by the exchange. If your margin ratio falls below this, one or more of your orders can be liquidated.

2-stage Liquidation

All liquidity positions are canceled if you are liquidated as a maker. Liquidity in these orders is converted into a permanent position (i.e., regular taker position).

  1. All of your open liquidity positions will be closed, leaving you with permanent positions in a healthy state for each market you were providing liquidity in.
  2. If the price continues to move against you, your permanent position will be liquidated.

Your positions will be liquidated separately, according to size (the keeper can only liquidate one position at a time, and will generally chose the largest to ensure maximum ability to collect the full liquidation bonus from the position.) This means that liquidation will likely leave other positions (if any) in a healthy state.