Liquidation

The price at which liquidation occurs is a function of asset qty [Q], PnL [E], collateral [C], closing + borrow fees [F], and a slippage risk factor [f] (1% for Crypto) which accounts for a built-in safety net to protect the protocol from losses on a position exceeding collateral.

In Short: If (collateral - losses - borrow fee) is less than 1% of your position's size. If the Asset price crosses this point then the position will be liquidated.

Allowed losses [A] on a position at which point the position is liquidated are determined by:

A=C(F+fQE)A =C- (F+fQE)

Likewise, the liquidation price [L] is calculated as follows:

L={EAQif LONGE+AQif SHORTL=\begin{cases} E-\frac{A}{Q} &\text{if } LONG \\ E+\frac{A}{Q} &\text{if } SHORT\end{cases}

If there is any collateral remaining after deducting losses and fees, then the corresponding amount would be returned to your account.

For example, assume a BTC/USD Long trade of qty 1.25 BTC using $1000 collateral with 20x leverage. The avg. entry price is 16,000 and total closing fees are $20. The corresponding liquidation price would be around 15,360. Besides the Palmswap team's liquidation wallet, it is also possible for anybody to trigger a liquidation. However, currently, 100% of the liquidations go to the PLP vault as a reward for providing liquidity.

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