Liquidations and ADL

This page covers liquidation mechanics, Auto-Deleveraging (ADL), and trading risks.

What is Liquidation

Liquidation occurs when a trader’s position no longer has sufficient collateral to support its exposure.

This happens when the trader’s equity falls below the required maintenance threshold, putting the system and liquidity providers at risk.

How Liquidation Works

• Each position has a liquidation price determined by:

  • collateral

  • leverage

  • fees and funding

• When this threshold is reached:

  • The position is force-closed

  • Remaining collateral is used to cover losses

• Liquidations are executed by keepers using oracle-based pricing

Early Liquidation (Prevention Layer)

To reduce the risk of bad debt, GSOL may trigger early liquidation before a position becomes fully insolvent.

• Activated when equity approaches critical levels

• Closes positions earlier than the absolute liquidation point

• Ensures sufficient collateral remains to cover losses

This mechanism prioritizes system safety over maximum trader exposure

Auto-Deleveraging (ADL)

In extreme market conditions, GSOL may activate Auto-Deleveraging (ADL) as a secondary protection layer.

• Triggered when:

  • trader profits become disproportionately large relative to vault liquidity

  • or system risk exceeds predefined thresholds

• The system will:

  • reduce or partially close profitable positions

  • rebalance exposure to protect the liquidity pool

ADL acts as a last-resort safeguard to maintain protocol solvency

Liquidation Fees

When a position is liquidated:

• A liquidation fee is charged

• Used to:

  • incentivize keepers

  • support protocol stability