This SIP proposes to incorporate slippage guards on liquidation transactions. This is done by splitting up the liquidation process into two components:
\nThe proposed liquidation mechanism can be broken down to the following:
\nFlagging: An account is eligible for flagging as per the _canLiquidate function. Keepers can trigger a flag which results in the position being staged for liquidation, at this point the account cannot interact with his position until liquidation is finalized and any pending exchange order is removed.
Spontaneous Liquidation can occur based on the following conditions:
\nmaxLiquidationDeltamaxPDmaxLiquidationDelta and maxPD checks. It is important to mention that the vast majority of liquidated accounts are expected to be liquidated spontaneously , but for the sake of expedient rollout of perpetuals and as a initial safety precaution, liquidator endorsement would be used. In future perp iterations, a more decentralized solution that does not depend on account endorsement would be incorporated into the liquidation process.Liquidation of large positions creates an opportunity for traders to position themselves ahead of a liquidation and potentially profit from the resulting price impact. This SIP proposes measures to prevent opportunistic ordering of transactions surrounding liquidations.
\nThe specification includes the following sections:
\nAn account who's remaining margin falls below his liquidation margin can be flagged. The flagger receives a sUSD reward, for triggering the flag:
\n$$\nmin( max(P * S * liquidationFeeRatio;minKeeperFee);maxKeeperFee)\n$$
\nWhere the variables are defined as follows:
\nP is the oracle priceS is the size of the position being flaggedminKeeperFee is configurable via SCCP (currently 2 sUSD)maxKeeperFee is configurable via SCCP (set to 1,000 sUSD)A flagged account would not be able to interact with his position until liquidation is enacted (by spontaneous liquidation or forced liquidation). A flagged account is cleared of any pending exchange order.
\nFlagged accounts can be spontaneously liquidated, if the below two conditions are met
\nmaxLiquidationDelta:$$\n\\frac{|S|}{skewScale} < maxLiquidationDelta\n$$
\nmaxPD:$$\n\\frac{|skew|}{skewScale} < maxPD\n$$
\nFew things to note:
\nkeeperLiquidationFee. The position is closed and the user can interact with the market by depositing sUSD and opening a new position.keeperLiquidationFee is general variable agnostic to the marketmaxLiquidationDelta and maxPD are both configurable variables per market.The protocol can add or remove addresses to the list of endorsed liquidators, via addEndorsedLiquidator and removeEndorsedLiquidator functions.
Liquidation can be triggered regardless of existing liquidation protection on flagged accounts. Liquidation would close the position and allows the user to interact with a given market. Endorsed keepers would incorporate off-chain logic to prevent execution of liquidations for market skew outliers. This allows for MEV-resistant liquidations while purely on-chain logic is developed further.
\nPending SC engineers input.
\nmaxLiquidationDelta\nmaxLiquidationDelta being exceededmaxLiquidationDelta\nkeeperLiquidationFee as a reward, account A's position is closed and the flag is removedmaxLiquidationDelta and the price recovered that the account is no longer flaggable\nkeeperLiquidationFee as a reward, account A's position is closed and the flag is removedmaxPD\nmaxPD being exceededmaxPD\nkeeperLiquidationFee as a reward, account A's position is closed and the flag is removedmaxPD and the price recovered that Account A is no longer flaggable\nkeeperLiquidationFee as a reward, account A's position is closed and the flag is removedmaxLiquidationDelta is the maximum delta beyound which spontaneous liquidation cannot occurmaxPD is the maximum market premium/discount beyound which spontaneous liquidation cannot occurkeeperLiquidationFee is the fee to a liquidator for triggering a spontaneous liquidationCopyright and related rights waived via CC0.
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