Liquidation

The liquidation mechanism within SphereX is designed to maintain the security and stability of the platform during borrowing and trading processes. When a user’s collateral value falls below a certain threshold, the system automatically initiates liquidation to prevent further losses.

• Liquidation Trigger: When users engage in borrowing or leveraged trading, and the market value of their collateral significantly drops, causing the collateral to no longer cover the borrowed amount or leveraged position, the system automatically triggers liquidation.

• Liquidation Process: A portion or all of the user’s collateral will be sold to repay outstanding debt. This process is executed by smart contracts, ensuring fairness, transparency, and efficiency.

• Avoiding Liquidation: Users can avoid liquidation by adding more collateral or repaying their debt early. SphereX provides real-time market data and alerts to help users make timely decisions and mitigate liquidation risks.

• Impact of Liquidation: The liquidation mechanism protects the overall stability of the platform and ensures the safety of other users' funds. It is a crucial tool for maintaining the healthy operation of the decentralized financial system.