Liquidations

🚨 Liquidation System on RocketFi

Liquidation occurs when a trader’s positions move against them, and their account equity falls below the maintenance margin threshold. Maintenance margin is set at 50% of the initial margin at maximum leverage, which ranges from 3x to 40x depending on the asset. This means maintenance margin requirements vary between 1.25% (for 40x leverage) and 16.7% (for 3x leverage).

🧾 Liquidation Process

  1. Triggering Liquidation When account equity drops below the maintenance margin, RocketFi attempts to close the position by submitting market orders for the full size of the position. These may be fully or partially filled.

  2. Partial or Full Closure If the position is closed sufficiently to meet margin requirements, any remaining collateral stays with the trader.

  3. Backstop Liquidation If equity falls below two-thirds of the maintenance margin and the position cannot be closed via the order book, RocketFi initiates a backstop liquidation through the Liquidator Vault.

🔄 Cross vs Isolated Margin Behavior

  • Cross Margin Liquidation All cross positions and margin are transferred to the liquidator. If no isolated positions exist, the trader’s account equity becomes zero.

  • Isolated Margin Liquidation Only the isolated position and its margin are transferred. Cross margin and positions remain unaffected.

Note: During backstop liquidation, the maintenance margin is not returned to the user. This buffer ensures the Liquidator Vault remains profitable on average.

📉 Mark Price & Liquidation Accuracy

RocketFi uses a mark price that blends external CEX prices with RocketFi’s internal order book state. This makes liquidation pricing more robust than relying on a single book snapshot, especially during high volatility or on highly leveraged positions.

🧮 Liquidation Price Calculation

Liquidation price estimates are shown when entering a trade, but may vary due to:

  • Funding payments

  • Unrealized PnL from other positions (for cross margin)

  • Changes in book liquidity

Formula:

liqprice=price−side×marginavailablepositionsize×(1−l×side)liqprice=price−side×positionsize×(1−l×side)marginavailable​liq_price=price−side×margin_availableposition_size×(1−l×side)liq_price=price−side×position_size×(1−l×side)margin_available​

Where:

  • l=1MAINTENANCELEVERAGEl=MAINTENANCELEVERAGE1​l=1MAINTENANCE_LEVERAGEl=MAINTENANCE_LEVERAGE1​

  • side=1side=1side=1side=1 for long, −1−1−1−1 for short

  • marginavailablemarginavailablemargin_availablemargin_available =

    • accountvalue−maintenancemarginrequiredaccountvalue−maintenancemarginrequiredaccount_value−maintenance_margin_requiredaccount_value−maintenance_margin_required (cross)

    • isolatedmargin−maintenancemarginrequiredisolatedmargin−maintenancemarginrequiredisolated_margin−maintenance_margin_requiredisolated_margin−maintenance_margin_required (isolated)

🧊 Partial Liquidation & Cooldown

For positions larger than 100k USDC, only 20% of the position is liquidated initially. After a partial liquidation, a 30-second cooldown is applied, during which any further liquidation attempts will target the entire position.

🛡️ Liquidator Vault

RocketFi democratizes backstop liquidations via the Liquidator Vault, a strategy within the RocketFi ecosystem. Positions below two-thirds of the maintenance margin can be taken over by the vault.

Unlike traditional venues where liquidation profits go to the exchange or privileged market makers, RocketFi routes all liquidation PnL to the community through the vault.

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