Liquidation Logic - Ascend Documentation

Liquidation is a protective mechanism that closes positions when they no longer have sufficient margin to absorb further losses. It protects the market from negative equity and ensures the system remains solvent. Liquidation is not punitive. It is a mechanical safety process that applies equally to all positions.

When Liquidation Happens

A position becomes eligible for liquidation when equity falls to or below the maintenance margin:

Equity ≤ Maintenance Margin

Or equivalently, when the margin ratio falls to 1.0 or below:

Margin Ratio ≤ 1.0

This condition is evaluated continuously using the Mark Price, not the Index Price. This ensures that temporary oracle spikes or manipulation cannot trigger liquidation.

Liquidation Price

The liquidation price is the probability level at which your position hits the liquidation threshold. For a LONG position:

Liquidation Price = Entry Price − (Initial Margin − Maintenance Margin) / Position Size

For a SHORT position:

Liquidation Price = Entry Price + (Initial Margin − Maintenance Margin) / Position Size

The difference between Initial Margin and Maintenance Margin represents how much loss your position can absorb before liquidation.

Example: LONG Position Liquidation

You open a LONG position:

Entry Price: 50%
Position Notional: 1,000 USDC
Initial Margin: 100 USDC (10x leverage)
Maintenance Margin: 25 USDC (2.5% rate)

Calculate liquidation price:

Liquidation Price = 0.50 − (100 − 25) / 1,000
                  = 0.50 − 0.075
                  = 42.5%

What happens as price falls:

Mark Price	Unrealized PnL	Equity	Margin Ratio	Status
50%	0	100 USDC	4.0	Healthy
48%	−20 USDC	80 USDC	3.2	Healthy
45%	−50 USDC	50 USDC	2.0	Caution
43%	−70 USDC	30 USDC	1.2	Warning
42.5%	−75 USDC	25 USDC	1.0	Liquidation

At 42.5%, equity equals maintenance margin. The position is now eligible for liquidation.

Example: SHORT Position Liquidation

You open a SHORT position:

Entry Price: 60%
Position Notional: 1,000 USDC
Initial Margin: 100 USDC (10x leverage)
Maintenance Margin: 25 USDC (2.5% rate)

Calculate liquidation price:

Liquidation Price = 0.60 + (100 − 25) / 1,000
                  = 0.60 + 0.075
                  = 67.5%

What happens as price rises:

Mark Price	Unrealized PnL	Equity	Margin Ratio	Status
60%	0	100 USDC	4.0	Healthy
63%	−30 USDC	70 USDC	2.8	Healthy
65%	−50 USDC	50 USDC	2.0	Caution
67%	−70 USDC	30 USDC	1.2	Warning
67.5%	−75 USDC	25 USDC	1.0	Liquidation

At 67.5%, the SHORT position hits the liquidation threshold.

Liquidation Process

When a position meets the liquidation condition:

Position flagged

The system identifies that equity has fallen to or below maintenance margin.

Risk controls applied

The position is queued for liquidation according to market rules.

Position reduced or closed

The position is reduced or fully closed using deterministic mechanisms.

Settlement

Remaining margin (if any) is returned to your balance. A liquidation fee is deducted. If losses exceed your margin, the insurance fund covers the shortfall.

The entire process is automatic and rule-based. No manual intervention occurs.

Partial vs Full Liquidation

Depending on market configuration, Ascend may use different liquidation approaches:

Partial Liquidation
Full Liquidation

The system gradually reduces your position size to restore equity above maintenance margin.How it works:

A portion of your position is closed
This realizes some loss but frees up margin
If equity recovers above maintenance, liquidation stops
If not, another portion is closed

Example:Your 1,000 USDC position hits liquidation. The system closes 400 USDC worth. Your new position is 600 USDC with lower maintenance requirement. If equity is now healthy, the remaining 600 USDC stays open.Benefit: You may keep part of your position if the market stabilizes.

Liquidation Fees

A liquidation fee is charged when a position is liquidated:

Fee Component	Description
Liquidation Penalty	Percentage of position notional (typically 0.5% to 2%)
Insurance Fund Contribution	Portion of penalty goes to the insurance fund

These fees incentivize traders to manage their positions rather than relying on liquidation. They also fund the insurance pool that covers shortfalls.

What the Insurance Fund Does

Sometimes a position moves so fast that it cannot be liquidated before equity goes negative. The insurance fund covers these shortfalls. Example:

Your equity hits 25 USDC (liquidation threshold)
Before liquidation executes, price moves further
Position closes at −10 USDC equity (negative)
Insurance fund covers the 10 USDC shortfall

The insurance fund is built from:

Liquidation fees
A portion of trading fees
Protocol reserves

This ensures counterparties are always made whole, even in extreme conditions.

Avoiding Liquidation

You can take action before liquidation occurs:

Use lower leverage

Lower leverage means your liquidation price is further from your entry. A 5x position can absorb twice the adverse move of a 10x position.

Leverage	Liquidation Distance from Entry
5x	~17.5%
10x	~7.5%
20x	~2.5%

Add margin before it's too late

If a position moves against you, adding margin increases your equity and moves the liquidation price further away.Example: Your liquidation price is 42.5%. You add 50 USDC margin. New liquidation price becomes 37.5%.

Reduce position size

Closing part of your position realizes some loss but reduces your maintenance margin requirement, improving your margin ratio.Example: You close half your position. Maintenance margin drops from 25 USDC to 12.5 USDC. Your margin ratio improves.

Set stop losses

Exit positions at a predetermined loss level rather than waiting for liquidation. This gives you control over your exit price and avoids liquidation fees.Example: Your liquidation price is 42.5%. You set a stop loss at 45%. You exit with a smaller loss and no liquidation penalty.

Key Points

Liquidation triggers when equity ≤ maintenance margin
Mark Price is used for liquidation checks (not Index Price)
Partial liquidation may preserve some of your position
Liquidation fees apply and fund the insurance pool
You can avoid liquidation by managing leverage, margin, and position size

Liquidation is a last resort. Active position management keeps you in control.

Next: Funding & Price Alignment

Learn how funding keeps prices aligned with external signals

​When Liquidation Happens

​Liquidation Price

​Example: LONG Position Liquidation

​Example: SHORT Position Liquidation

​Liquidation Process

​Partial vs Full Liquidation

​Liquidation Fees

​What the Insurance Fund Does

​Avoiding Liquidation

​Key Points