4. Liquidating Positions

The final operation performed by the protocol is liquidating positions. When the liquidation price of a long position is reached, the protocol automatically proceeds with its liquidation. At this point, the position’s collateral is typically depleted or nearly so, triggering a liquidation to prevent the protocol from incurring further losses.

It is important to note that a penalty of approximately 2% is already included in the calculation of the liquidation price. This penalty is designed to protect the protocol during periods of high price volatility. For more details about this penalty and other fees, please refer to the dedicated fees section.

This liquidation mechanism helps safeguard the protocol's vault and other system participants, ensuring the stability of the system and maintaining a secure trading environment.