Perpetual Liquidations - How They Work
When a position's equity falls below the maintenance margin, the protocol force-closes it. In leveraged perp markets, cascading liquidations can amplify price moves 3-5x - a 5% drop can trigger forced selling that produces a 20% crash. Understanding the mechanics of liquidation price, keeper incentives, partial vs full liquidations, and ADL is survival knowledge for any perp trader.
Liquidation Price Calculator
Set entry price, leverage, collateral, and direction. The gauge shows your distance from liquidation - the red zone is where your position gets force-closed. The horizontal bar shows entry, liquidation, and current price positions.
Direction
Position Size
$100,000
Entry Price
$2,000
Liquidation Price
$1,800
Distance to Liq
+10.2%
Unrealized PnL
?$2,000
Health
73%
10x leverage on $10,000 collateral -> $100,000 position. A 10% adverse move from entry ($200) liquidates you.
Current price $1,960 is +2% from entry but still +10.2% above liquidation. Margin health at 73% - maintain
at least 1% buffer above the liquidation price at all times.
Leverage Tiers & Liquidation Thresholds
Most perp DEXs use tiered maintenance margin - larger positions get lower max leverage and higher MMR to protect the insurance fund from concentrated risk. This table shows typical tier configurations.
Position Size Max Leverage MMR Adverse Move to Liq Safety
< $50K 125x 0.4% ~0.4% Extreme
$50K - $250K 50x 1.0% ~1% High
$250K - $1M 20x 2.5% ~2.5% * Moderate
$1M - $5M 10x 5.0% ~5% OK Safe
> $5M 5x 10.0% ~10% OK Conservative
Liquidation Cascade Simulator
Start with a price drop. Watch how one wave of liquidations creates forced selling that pushes the price lower, triggering the next wave. This self-reinforcing feedback loop is what makes cascades so destructive. An initial 5% drop can produce a 20%+ total drawdown. Click "Run Cascade" to step through rounds.
Initial: $2,000 -> 5% drop -> $1,900. OI concentration amplifies each round.
? Keeper Mechanics by Protocol
GMX V2
Keeper-driven First-come-first-served
Who liquidates?
Any keeper bot that submits liquidatePosition when mark price crosses the liquidation threshold. First valid tx wins.
Keeper incentive
Fixed fee ($5-10) + % of residual collateral. Competition creates MEV-like dynamics - keepers use private price feeds to front-run each other.
Partial liq?
V2: yes - only closes enough to restore health above MMR. V1: full only.
Insurance
GM pool absorbs losses. ADL fires when winners' positions exceed pool capacity.
dYdX V4
Protocol-managed Deterministic
Who liquidates?
Protocol itself - when position equity falls below MMR, the matching engine force-closes at current oracle price. No third-party keeper competition.
Keeper incentive
Liquidations are protocol-executed. Trading fees and liquidation reserves fund the insurance. No separate keeper bounty competition.
Partial liq?
Yes - tiered: 25% at 1MMR, 50% at 0.75MMR, 100% at 0.5MMR. Reduces market impact of large liquidations.
Insurance
Insurance fund covers bankruptcy price gaps. ADL is protocol backstop for extreme scenarios.
Hyperliquid
Protocol-managed On-chain L1
Who liquidates?
Protocol monitors all positions on-chain. When mark price crosses MMR threshold, position is force-closed through the matching engine deterministically.
Keeper incentive
No external keepers - all liquidation execution is protocol-native. Eliminates keeper competition and MEV on liquidations.
Partial liq?
Full liquidation only at threshold. No tiered partial liquidation mechanism.
Insurance
Insurance fund + protocol treasury. ADL if fund is insufficient. L1 finality means liquidation is irreversible within one block.
? Insurance Fund vs Auto-Deleveraging (ADL)
Insurance Fund
Accumulated from: trading fees, liquidation surpluses (price at liquidation vs bankruptcy price), protocol treasury top-ups. Absorbs the gap when a position liquidates below its bankruptcy price.
Fires: first - before ADL
Partial Socialization
When insurance fund cannot cover the full gap, remaining losses are socialized pro-rata across all positions on the lighter side of the market. Rare but possible in black swan events.
Fires: second - if fund is insufficient
?
Auto-Deleveraging (ADL)
Last resort. The most profitable positions on the winning side are force-reduced pro-rata when pool liabilities exceed available collateral. ADL closes positions at the bankruptcy price, not current market price.
Fires: last resort - when fund + socialization both fail
Survival rules: Use isolated margin (never cross-margin) to limit blast radius.
Always set a stop-loss above your liquidation price. At 10x, a 10% move is fatal. At 20x, 5%.
In a cascade, liquidity thins out and slippage kills you before the liquidation engine even fires -
so watch market depth, not just price.
Frequently asked questions
- What exactly is the liquidation price formula?
- For a long: Liq Price = Entry (1 ? (Collateral ? Fees) / Position Size + MMR). For a short: the sign flips. At its simplest for a position with no fees and 1% MMR: Long liq = Entry (1 ? (1/leverage)), Short liq = Entry (1 + (1/leverage)). This means at 10x leverage, a long needs only a 10% drop to liquidate. The formula scales with fees and borrow costs on GMX.
- What is maintenance margin (MMR) and how does it vary by position size?
- Maintenance margin ratio (MMR) is the minimum equity level a position must maintain to avoid liquidation. Most perp DEXs use tiered MMR: positions under $50K might have 0.4% MMR (125x leverage possible), while $1M-$5M positions sit at 5% MMR (max 20x). The tier table exists to limit concentrated risk - a $10M position at 100x that liquidates at once would be catastrophic for the insurance fund. The larger your position, the more conservative your leverage must be.
- Who can liquidate positions on GMX vs dYdX vs Hyperliquid?
- GMX: any keeper bot can call liquidatePosition when conditions are met. Keepers earn a fixed fee (usually $5-10 per liquidation plus a percentage of residual collateral). dYdX v4: liquidations are protocol-managed - validators monitor positions and force-close them when equity falls below MMR. Hyperliquid: the protocol monitors positions and triggers liquidation through its own keeper network. The key difference: on CLOB DEXs the matching engine force-closes deterministically; on AMM-based DEXs like GMX, the first keeper to submit the transaction gets the fee, creating MEV-like competition for liquidation transactions.
- What is partial vs full liquidation?
- A full liquidation closes the entire position at once when equity falls below the maintenance threshold. A partial liquidation closes only enough of the position to bring equity back above the MMR. dYdX v4 uses tiered partial liquidation: when equity falls below 1 MMR, 25% of the position is closed; below 0.75 MMR, 50% is closed; below 0.5 MMR, the full position closes. GMX V1 uses full liquidation only; V2 added partial liquidations via the isolation mechanism. Partial liquidations are gentler on the order book and reduce cascade amplification.
- How does auto-deleveraging (ADL) work on GMX V2?
- ADL fires when the GM pool's remaining OI on the winning side exceeds what the pool can pay out. The protocol force-reduces the most profitable positions pro-rata - essentially closing winners' positions at the bankruptcy price so the pool stays solvent. ADL is the last resort after borrow fees, OI imbalance rebates, and impact fees have failed to rebalance the book. It's rare under normal conditions but becomes likely in extreme one-directional moves that exhaust the pool's available collateral.
- What is the insurance fund's role in liquidations?
- The insurance fund is the first backstop when a position liquidates below its bankruptcy price - the price at which the remaining collateral would be zero. The gap between liquidation price and bankruptcy price is socialized: the insurance fund covers it if it has sufficient balance; if not, ADL fires. Insurance funds on dYdX are built from trading fees, liquidation surpluses, and protocol treasury top-ups. On GMX, the GM pool itself acts as the implicit insurance since LP deposits cover the opposite side of every trade.
- Why do liquidation cascades amplify price moves?
- When a large open interest is concentrated on one side (say, longs at 80% of OI) and price drops, the liquidation of those long positions creates forced selling that pushes the price further down. This lower price triggers the next tier of liquidations, creating another wave of selling, and so on. The cascade amplifies because each wave of liquidations moves the price enough to trigger the next wave. This is why mark-vs-index design matters: if mark price tracks the local order book closely, liquidations walk the price down violently. If mark is anchored to a multi-venue index, the cascade dampens as external prices provide a floor.
- What is the relationship between liquidation cascade and max leverage?
- At 100x leverage, a 1% adverse move triggers full liquidation. At 5x leverage, a 20% move is needed. The higher the leverage across an entire market, the more likely a moderate price move cascades into mass liquidations. This is why tiered leverage exists - large positions can't be opened at 100x because the liquidation blast radius would be catastrophic. As of 2026, the most dangerous cascades have historically started with persistently high funding rates that crowded longs into extremely leveraged positions, then a macro reversal triggered a cascade.