Liquidation

When you take a leveraged position, you choose a price range estimate for the price ratio of the tokens pair you are leveraging. Higher leverage means you will have a smaller safe price range. Liquidation happens when the price moves outside this range. Therefore a smaller range means more risk.

If The Price Drops Too Low

If the price ratio drops below this range, the collateral is about to become worth less than it would take to repay the loan. To protect the lenders the loan is liquidated. In case of liquidation, borrowers lose up to 4% of the borrowed amount.

If The Price Rises Too High

Similarly, if the LP token price moves above this range, the value of the loan will be too high to be repaid by the collateral. In the same way, to protect the lenders the loan is liquidated. In case of liquidation, borrowers lose up to 4% of the borrowed amount.

Liquidation Does Not Mean Losing All Your Funds

As mentioned above, when your position is liquidated you will lose 4% of the borrowed amount, which is deducted from your starting collateral.

For example, if you start with 1,000 tokens and borrow 2,000 tokens, this gives you an x3 leveraged position. In the event of liquidation, you would lose 4% of 2,000 which is 80. So after liquidation, your account balance would be 1,000–80 = 920.

Avoiding Liquidation

Here are some ways to protect yourself from liquidation.

  • Choose LP tokens with more stable value. More volatile token pairs have a higher chance to go outside the liquidation price range.

  • When prices are volatile, you may want to check back on your leveraged position often to see whether you want to deleverage.

  • If you see the price getting too high or too low, you can reduce leverage or fully exit your leverage with the app’s deleverage button. Note that this relies on confirming a network transaction, so it may require higher transaction fees or wait times if the network is congested.

  • Lend funds instead of leveraging. Supplied funds have no risk of liquidation. This will always be a safer option than leveraging and may also provide very good returns. You can supply funds in the Lending tab of the app.

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