Understanding Liquidation Protocols on CVEX

March 27, 2024

Crypto Valley Exchange (CVEX) stands at the forefront of managing the dynamic challenges in decentralised finance. With a firm commitment to trader protection and market stability, CVEX implements an advanced liquidation protocol. This mechanism is a cornerstone of the platform, ensuring that the market’s integrity and the traders’ interests are preserved even during intense market fluctuations.

Margin Ratios as Safety Thresholds

On CVEX, liquidation is initiated when a trader’s margin ratio falls beyond 100%. This is a clear signal that the trader’s collateral is no longer adequate to cover the risks associated with their positions. CVEX deploys Clearance Bots to address this, which kickstarts a well-structured liquidation process. The objective here is to minimise market disruption and ensure that the values are recovered fairly, thus maintaining a balanced risk exposure.

A Layered Approach to Liquidation

CVEX’s liquidation protocol is intricate, featuring three distinct methods, each contributing to the overall stability of the market:

  1. Market Order Liquidation with Liquidation Fee. The platform quickly executes market orders at the most favorable current prices. If a market order cannot be filled completely, it is withdrawn to mitigate any adverse impact on the market. The liquidation fee, set at approximately 2% of the position’s nominal value, is directed into the Default Fund, which stabilises reserves during market turmoil or liquidity crises.
  2. Utilising the Default Fund. The Default Fund intervenes to fill the financial gaps when the liquidation proceeds are inadequate. Moreover, this fund is replenished with any surplus generated from liquidations, maintaining its capacity to stabilise the market in future scenarios.
  3. Counterparty Liquidation via Auto Deleverage Queue. In extreme cases where other methods fall short, CVEX resorts to Counterparty Liquidation. This method systematically reduces counteracting positions in the market, ensuring equilibrium is restored. It’s a crucial tool, used only when necessary, to maintain market integrity.

About Clearance Bots

The Clearance Bots in CVEX’s ecosystem are pivotal. They are programmed to respond swiftly in high-risk scenarios and rewarded through a portion of the liquidation fees. Their prompt actions are crucial for maintaining the market’s equilibrium and stability. A portion of the Liquidation Fee is set aside as a reward for the Clearance Bots. Generally, this is about 0.5% of the liquidated position’s nominal value, which the Platform Operator sets.

Counterparty Liquidations — Your Ultimate Safety Net

Counterparty Liquidations are rare yet essential procedures activated under extreme conditions. These liquidations are meticulously designed to be fair and immune to market manipulation. While CVEX strives to avoid this last-resort measure, its existence is vital for upholding market integrity in unpredictable scenarios.

What Is the Default Fund?

The Default Fund is a key component of CVEX’s liquidation arsenal. It plays a significant role in absorbing the shocks of defaults, thereby lessening the need for Counterparty Liquidation. Its presence and management are central to ensuring a stable trading environment on CVEX.


CVEX’s comprehensive liquidation protocols embody the platform’s dedication to providing a secure and fair trading environment. These measures are thoughtfully crafted to manage risks and uphold market stability, reinforcing CVEX’s position as a reliable and forward-thinking player in the decentralised finance domain.

CVEX’s liquidation safeguards constitute a comprehensive protocol that mitigates risks posed by extreme market volatility. This systematic approach to risk management ensures market stability and fairness, making CVEX a secure and reliable platform for traders in the decentralised finance space.

This intricate system of checks and balances reflects CVEX’s commitment to providing a trading environment where risks are managed effectively, ensuring the safety of traders and the overall market even under turbulent conditions.