Liquidations
Trading on leverage can be risky. Make sure you are aware of the liquidation rules outlined below before applying margin.
Below table shows how partial and full liquidations are handled within Drift protocol.
Type | Liquidation Margin Ratio / Leverage | % of Positions Closed | Liquidation Penalty | % Given to Liquidators |
Partial | ๏ปฟContract Specs | 25%* of each position until margin requirement met | up to 2.5% of total collateral | 50% |
Full | ๏ปฟContract Specs | 100%* of all open positions until margin requirement met | up to all remaining collateral | 5% |
*Individual positions will only be closed at up to ~1% market impact per liquidation instruction until margin requirement met
Definitions:
- Liquidation Type: Liquidations that are partial act as a stop-loss in an attempt to avoid a full liquidation. Sufficiently small accounts (<1 USDC of collateral) will be fully liquidated at the partial level.
- Liquidation Margin Ratio: The margin ratio of the user's account at which the user will get either partially or fully liquidated. Margin ratio is calculated by total collateral divided by total sum of open positions.
- % of Positions Closed: The percentage of open positions that will be forcefully closed, or liquidated, at the specified margin ratios.
- Liquidation Penalty: The percentage of collateral penalty taken from a user's remaining collateral from liquidations. This penalty covers the full fee paid, e.g. a partially liquidated user does not pay a taker fee.
- % Given to Liquidators: The system's liquidation penalty is split between Drift's Insurance Fund to secure future potential bankruptcies and liquidators who run a bot to crank the liquidations that occur in the system. This is the percentage fees that get paid to third parties who run the liquidator cranker on our platform.
Liquidators are open-sourced and can be triggered by anybody running a liquidator bot. Liquidators, also known as Keepers, will have their collateral reward credited within their Drift account.
In normal conditions, our margin ratio calculation uses theortical mark price after closing (Exit Price) to calculate total collateral and the notional sum of open positions (i.e. margin ratio) as the price that liquidations are based on.
When oracle-mark divergence > 3.33%, the better of 1) oracle with Drift market slippage and 2) mark price after closing will be used to value the position to prevent wrongful liquidations.
In the case of oracle error (Oracles): the market will pause most liquidations and funding rate updates.
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