Liquidation
Liquidation is the process of automatically closing a position when it approaches insolvency. This protects the Vault (and LPs) from bad debt.
When Does Liquidation Happen?
A position is liquidated when the oracle price crosses the liquidation price:
- Long: Liquidated when
current_price ≤ liquidation_price - Short: Liquidated when
current_price ≥ liquidation_price
The liquidation price is calculated when the position is opened. It can change if you add collateral, remove collateral, or partially close the position because those actions change the remaining position's risk.
Liquidation Ratio
The liquidation ratio determines how much of your collateral can be lost before liquidation triggers.
The liquidation ratio is a configurable protocol parameter. When unrealized losses consume a significant portion of your collateral, your position is liquidated. The remaining collateral covers borrow fees and provides a safety buffer.
Check the trading interface for the current liquidation ratio.
Adding collateral usually moves your liquidation price farther away. Removing collateral or taking a losing partial close can move it closer. Always review the updated liquidation price before signing.
What Happens During Liquidation
- Atlas detects that the oracle price has crossed a position's liquidation threshold
- A liquidation transaction is submitted on-chain
- The smart contract verifies that the position truly meets liquidation conditions
- The position is closed and remaining collateral (minus borrow fee) returns to the Vault
After Liquidation
| What | Where It Goes |
|---|---|
| Remaining collateral | Vault (increases LP liquidity) |
| Borrow fee | Vault (LP revenue) |
| Reserved liquidity | Released back to available pool |
The trader receives nothing from a liquidated position.
There is no partial liquidation. When liquidation triggers, your entire position is closed and all collateral is forfeited to the Vault.