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Liquidation happens when your account equity falls below your maintenance margin requirement. Decibel uses a two-stage liquidation process that’s fully transparent and on-chain.

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When Liquidation Triggers

Your account becomes eligible for liquidation when: 
Account Equity < Maintenance Margin Requirement
Account equity includes your total collateral plus unrealized PnL (including accrued funding). Maintenance margin is calculated based on your total position notional.

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Two-Stage Process

Decibel liquidates positions in two stages, attempting to recover as much value as possible for the trader.

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Stage 1: Market Disposition

When your account falls below maintenance margin:
  1. The system generates a market order to close your positions
  2. The order is bounded by a maximum slippage parameter
  3. If equity is restored above maintenance margin, the process ends
  4. Any remaining collateral stays in your account
Stage 1 tries to close positions through normal market orders. If the orderbook has enough liquidity to fill at reasonable prices, liquidation completes here.

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Stage 2: Backstop Liquidation

Backstop Liquidation triggers when Account Equity falls below the backstop maintenance margin (²⁄₃ of MM):
  1. The entire account is transferred to the Backstop Liquidator Vault
  2. All positions are marked-to-market and PnL is crystallized at current mark price
  3. The Backstop absorbs any remaining deficit
  4. No socialized losses to other traders
The Backstop is a protocol-owned vault that takes over underwater accounts. This ensures that even in extreme market conditions, losses aren’t spread across other users.

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Auto-Deleveraging (ADL)

Beyond liquidation, Decibel has a final circuit breaker called Auto-Deleveraging (ADL). ADL activates in extreme scenarios when the Backstop accumulates irrecoverable losses. It’s rare, fully transparent, and ensures protocol solvency without socializing losses.

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Transparent Execution

Unlike some exchanges that quietly “turn off” accounts or internalize liquidations, every Decibel liquidation is:
  • On-chain. Verifiable in the transaction history
  • Public. Anyone can see liquidation events
  • Atomic. Completes in a single block
  • Non-custodial. Protocol doesn’t hold your funds, just executes rules
You can monitor liquidation state through the API and receive alerts before reaching the threshold.

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Avoiding Liquidation

To stay above maintenance margin:
  1. Monitor equity. Watch your account equity relative to MM requirement
  2. Use less leverage. Lower leverage means more buffer before liquidation
  3. Add collateral. Deposit more USDC to increase your margin
  4. Reduce positions. Partially close positions to lower MM requirement
  5. Set stop losses. Automatically close before reaching liquidation

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Warning Thresholds

Consider setting alerts at these levels:
ThresholdAction
Equity < 150% of MMConsider reducing position
Equity < 120% of MMStrong warning, add collateral
Equity < 105% of MMCritical, liquidation imminent

Auto-Deleveraging

The final circuit breaker after liquidation

Margin

How margin requirements are calculated

Funding Rates

How funding affects your equity