Liquidation
What happens when a position can no longer cover what it owes, and who ends up paying.
Health, and when it runs out
A position’s health is its equity divided by its exposure. Equity is simply what you hold minus what you owe, so it falls as the market moves against you. Below 4%, anyone may close the position.
It sells into the same pool you traded
Closing a long sells the collateral; covering a short buys the token back. Both go through the ordinary pool, at the ordinary price, and print an ordinary candle — there is no separate liquidation venue and no privileged counterparty.
While a position is still solvent it is closed in parts, so a brief dip does not wipe out someone who would have recovered. Once equity has gone negative the loss is already real, and delaying only shrinks what lenders get back — so at that point the whole thing can be closed at once.
Bad debt is written down, not hidden
If the collateral no longer covers the debt, the shortfall is recognised immediately: the token’s insurance account pays what it can, and whatever is left is deducted from suppliers’ claims — Raw tier first, then Insured.
The liquidator is paid first
The 10% penalty comes off the top, before the debt is repaid. That ordering is deliberate: a position worth liquidating has, by definition, almost nothing spare, so a fee taken from what is left over would be zero exactly when the work matters most. An unliquidated position costs lenders far more than the fee does.