Liquidation in Multi-Asset Mode
Last updated
Last updated
In multi-asset mode, liquidation is triggered when the collective value of the deposited asset basket reaches the designated liquidation threshold, which is determined by the liquidation ratios of the individual assets. When this threshold is met, all assets in the basket are liquidated and removed from the user's account, and a corresponding USD margin is issued based on the basket’s effective collateralization ratio. This approach ensures that the margin balance reflects the overall asset value, rather than relying on the performance of a single asset.
Users are advised to monitor the margin utilization ratio on their portfolio page continuously to manage risk and prevent the basket’s value from reaching the liquidation threshold. Maintaining awareness of this metric is essential to ensure that the deposited assets remain above the liquidation threshold, thereby preserving the integrity of the user's margin account.
For example, if a user deposits 100 units each of two assets—Asset 1 (with a collateralization ratio of 0.7 and a liquidation ratio of 0.75) and Asset 2 (with a collateralization ratio of 0.75 and a liquidation ratio of 0.8)—Asset 1 is not subject to liquidation solely due to a decline in its index price, provided that an increase in the index price of Asset 2 compensates to maintain the overall basket above the liquidation threshold.
Defx further enhances margin management by performing regular asset sweeps. When the index price of a deposited asset rises above or falls below a system-defined threshold, the platform automatically adjusts the issued margin by either transferring additional margin into the margin account or returning excess margin to the asset account. This process minimizes the need for manual intervention, except when a user must take action to prevent liquidation.
