Perps Liquidations

When a position’s maintenance margin falls below the required level, it becomes subject to liquidation.

Nad DEX’s perps implement an Oyster AMM-inspired liquidation system with two methods:

1

Takeover (Position Takeover)

• A liquidator takes over the under-margined position.

• The liquidator assumes the position plus remaining margin.

• They then top up margin to meet initial requirements.

• Any remaining margin from the liquidated position potentially becomes profit for the liquidator, assuming they manage the risk.

2

Forced Close (Direct AMM Trade)

• The failing position is directly traded against the AMM to reduce or close exposure.

• Normal trading fees apply, plus a dynamic penalty fee.

• If any margin remains after forced close, it is sent to the market’s insurance fund.

Partial Liquidations

Both methods support partial liquidation:

• Liquidators can specify only part of a position to liquidate.

• Multiple liquidators can collectively unwind a large position, helping stabilize markets.

Bankrupt Positions

If a position is bankrupt (insufficient collateral to cover losses):

1. The insurance fund for that market is used to cover the shortfall.

2. If the insurance fund is depleted, losses are socialized across profitable traders on the opposite side of the market, using longSocialLossIndex and shortSocialLossIndex variables.

This socialized loss mechanism ensures the protocol remains solvent even in extreme scenarios.