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Risk-Based Liquidation Adjustment is a risk management mechanism designed to fairly and effectively manage user liquidations by assessing the liquidation value based on the risk profile of collateral tokens, and prioritizing high-liquidity assets during liquidation to minimize market impact and user costs.
Here each token is assigned a Risk-Based Liquidation Ratio to assess its liquidation value, while the tokens’ liquidity ranking is based on Portfolio Margin collateral ratio. Tokens with higher the collateral ratio are considered to be of higher liquidity. When two tokens share the same collateral ratio, their liquidation priority will be randomly decided.
The four main steps are:
1. Calculate the total net asset and net debt before liquidation.
2. Calculate the total amount pending settlement.
3. Apply the risk-based liquidation adjustment to net assets.
4. Liquidation settlement.
Token | Collateral Amount | Margin Debt | USDⓈ-M Negative Balance | COIN-M Negative Balance | Index Price (USD) |
| USDC | 10,000 | 0 | 100 | 0 | 1 |
| USDT | 100 | 600 | 0 | 0 | 1 |
| BTC | 0.1 | 0 | 0 | 0.5 | 100,000 |
| ETH | 10 | 0 | 0 | 5 | 4,000 |
| Token XYZ (Low Liquidity Token) | 20,000 | 0 | 0 | 0 | 2 |
1. Calculate the total net debt and net assets before liquidation
Token | Net Asset | Net Debt | Index Price (USD) |
| USDC | 9,900 | 0 | 1 |
| USDT | 0 | 500 | 1 |
| BTC | 0 | 0.4 | 100,000 |
| ETH | 5 | 0 | 4,000 |
| Token XYZ (Low Liquidity Token) | 20,000 | 0 | 2 |
2. Calculate the total amount pending settlement
3. Apply the Risk-Based Liquidation Adjustment to net assets
| Token | Liquidated Asset | Index Price (USD) | Risk-Based Liquidation Ratio | Risk-Based Liquidation Adjustment qty * price * (1 - Risk-Based Liquidation Ratio) |
| USDC | 9,900 | 1 | 0.01% | 9,900 * 1 * (1 - 0.01%) = 9,899.01 |
| ETH | 5 | 4,000 | 10% | 5 * 4,000 * (1 - 10%) = 18,000 |
| Token XYZ (Low Liquidity Token) | 7,883.11875 | 2 | 20% | 7,883.11875 * 2 * (1 - 20%) = 12,612.99 |
where:
4. Liquidation settlement
Token | Collateral Amount | Margin Debt | USDⓈ-M Negative Balance | COIN-M Negative Balance |
| USDC | 0 | 0 | 0 | 0 |
| USDT | 0 | 0 | 0 | 0 |
| BTC | 0 | 0 | 0 | 0 |
| ETH | 0 | 0 | 0 | 0 |
| Token XYZ (Low Liquidity Token) | 12,116.88125 | 0 | 0 | 0 |
In this example, high-liquidity assets are liquidated first during liquidation to minimize market impact and reduce the overall risk-based liquidation adjustment.
Please note: All collateral assets will be cleared if the net asset after adjustment cannot cover the total amount pending settlement, in which case for Portfolio Margin Pro Account the remaining debt will be denoted in “pmLoan” for the user to repay by himself.
