Price and risk are coupled
On DerivaDEX, price handling and risk controls are part of one solvency model:- mark price drives margin and liquidation checks
- price-deviation and banding controls bound execution extremes
- pre-trade and in-match solvency checks enforce account safety
Read this page when
| If your question is… | Use this page because… |
|---|---|
| why mark price, liquidation, and solvency belong in one system story | it explains the mechanism coupling rather than listing isolated formulas |
| how liquidation, ADL, and the insurance fund fit together conceptually | it connects those controls as one risk-resolution model |
| why public reference pages talk about price inputs, margin, and safeguards separately | it provides the rationale that ties those factual references together |
Mechanism chain
The public mechanism is easiest to read as one chain:- DerivaDEX derives the mark-price view from its documented price-input sources and smoothing or banding rules.
- Margin and solvency checks use that risk price rather than the last traded price.
- Pre-trade and in-match safety controls reject or bound requests that would create unsafe state.
- If a live position falls below maintenance thresholds, liquidation is triggered through the normal risk-resolution path.
- If normal liquidation cannot restore safety cleanly enough, ADL becomes the fallback resolution path.
Liquidation and ADL in the model
When margin deteriorates below maintenance thresholds, liquidation is queued and executed through normal market path where possible. If liquidity constraints or solvency constraints prevent safe completion, ADL provides fallback risk resolution. Insurance-fund debits and credits close the loop between liquidation outcomes and system solvency. Two implementation details matter for understanding why the fallback is safety-critical:- liquidation work moves ahead of ordinary matching once an account enters the liquidation queue
- ADL closes the unresolved path at the liquidated account’s bankruptcy price rather than at an arbitrary market-derived fallback
Normal liquidation versus ADL
| Path | Public reading |
|---|---|
| Normal liquidation | First-line risk resolution when unsafe exposure can still be reduced or closed through the ordinary liquidation path |
| ADL | Fallback resolution path when liquidity or solvency conditions prevent safe completion of the normal liquidation flow |
| Insurance fund | Solvency backstop that absorbs or redistributes losses as part of the broader liquidation and ADL safety model |
Sources
- Trading Safeties and Guards for the public reference summary of liquidation, ADL, insurance-fund, and execution-guard terminology
- Margin Requirements for maintenance-threshold and solvency formulas
- Price Feeds and Mark Price Inputs for mark-price inputs and banding context
- Perpetual Swap: Leveraged Derivatives Without Liquidation for perpetual-swap and funding vocabulary