Perps Liquidation Engine

Liquidation is a protocol safety mechanism designed to prevent undercollateralized positions from creating systemic insolvency risk. In leveraged markets, liquidation is not an exceptional edge case; it is a core stability function.

Liquidation Trigger

A position becomes liquidation-eligible when account equity falls below maintenance requirements as defined by protocol risk rules.

Common causes include:

• adverse directional movement,

• excessive leverage relative to volatility,

• insufficient collateral buffer,

• cumulative fee/funding pressure over time.

Engine Objectives

A robust liquidation system must balance two objectives:

1. protect protocol solvency and minimize bad debt,

2. avoid unnecessary liquidations from transient noise.

Emofi approaches this through deterministic thresholds and transparent enforcement logic.

Liquidation Flow (Conceptual)

1. account health breaches maintenance requirements,

2. liquidation process is initiated under protocol conditions,

3. position is reduced or closed according to engine rules,

4. relevant penalties/fees are applied where defined,

5. residual equity, if any, remains attributable to the user.

Why Early Management Matters

Most forced actions become unavoidable only after delayed response. Users who act earlier generally retain more optionality:

• add collateral to restore health,

• reduce position size to lower exposure,

• de-risk or fully exit when conditions invalidate thesis.

User Guidance

Treat liquidation distance as an active operating metric, not a passive dashboard number. In volatile markets, speed of decision is part of risk control.