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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.

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Liquidation Types

MuchFi enforces three liquidation categories:

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Standard Liquidation

Triggered when: 
Account Equity < Account Maintenance Margin Total

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Backstop Liquidation

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

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Auto-Deleveraging (ADL)

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

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Standard Liquidations

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

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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

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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.

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Backstop Liquidations

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

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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

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Keeper Incentives

Keeper incentive documentation coming soon.