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Liquidity Providers act as a safety net when incremental liquidation cannot close a position in time. Instead of forcing a disorderly sale into a thin market, Everstrike allows a registered Liquidity Provider to take over the position at the Bankruptcy Price, giving them time to hedge the acquired exposure while protecting the broader market.

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When Liquidation Can Fail

Standard incremental liquidation attempts to reduce an underwater position in small steps. That process can break down in either of these conditions:
  • Insufficient liquidity — the market cannot fill a liquidation order at an acceptable price, leaving the position partially or fully open.
  • Fast-moving markets — the Mark Price deteriorates so rapidly that it reaches the Bankruptcy Price before the liquidation process completes.
When either condition applies, the position becomes eligible for a Liquidity Provider takeover.

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Price Thresholds

All three thresholds are calculated using the contract’s Mark Price. Understanding them helps you anticipate where your position stands at each stage of the liquidation cascade.

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Liquidation Price

The Liquidation Price is where a position enters liquidation. At this price, the position’s Gross Position Margin falls below the Minimum Maintenance Margin requirement. Once crossed, the incremental liquidation process begins.

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Failure Price

The Failure Price is where liquidation is considered to have failed. At this price, the position’s Gross Position Margin equals 50% of its Minimum Maintenance Margin requirement — indicating the market could not reduce the position fast enough to preserve the required margin buffer.

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Bankruptcy Price

The Bankruptcy Price is where the position’s Gross Position Margin reaches zero. A Liquidity Provider takes over the position at this price. If no provider steps in, the position is eligible for a Deleverage Event.

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Sequence for a Long Position

1

Liquidation begins

The Mark Price drops below the Liquidation Price. Everstrike starts reducing your position incrementally.
2

Incremental reduction attempts

The system attempts to sell portions of the position into the market to restore margin above the Minimum Maintenance Margin threshold.
3

Possible recovery

If the Mark Price recovers before the Failure Price is reached, the position can exit liquidation with the remaining size intact.
4

Liquidation declared failed

If the Mark Price continues to fall and reaches the Failure Price, the liquidation process is declared failed.
5

Liquidity Provider takeover

A Liquidity Provider can take over the full position at the Bankruptcy Price. The provider then has time to hedge the acquired exposure.
For a short position, the same thresholds apply in the opposite price direction — the Mark Price rising through each threshold rather than falling.

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Cross Margin

With Cross Margin enabled, the risk system manages Gross Position Margin for each position automatically using the account’s combined balance. Individual positions only become subject to liquidation when the account-wide Gross Position Margin falls below the account-wide Minimum Maintenance Margin requirement — giving you more buffer across your overall portfolio before any single position triggers the cascade above.

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If No Provider Takes Over

If liquidation fails and no Liquidity Provider accepts the position at the Bankruptcy Price, Everstrike can initiate a Deleverage Event to resolve the bankrupt position by closing selected counterparty positions.