Auto deleveraging

The liquidator has one last option to avoid liquidations that would cause a sufficiently large drawdown, at which point auto-deleveraging is triggered.

Auto-deleveraging strictly ensures that the platform stays solvent. If a user's account value or isolated position value becomes negative, the users on the opposite side of the position are ranked by unrealized pnl and leverage used. Those traders' positions are closed at the previous oracle price against the now underwater user, ensuring that the platform has no bad debt.

Auto-deleveraging is an important final safeguard on the solvency of the platform. There is a strict invariant that under all operations, a user who has no open positions will not socialize any losses of the platform.

Mechanism

Trigger conditions

  • When the user's account value (overall margin account) or isolated position value (single position) becomes negative, there is a risk of margin call, and the automatic position reduction mechanism will be triggered.

Execution logic of reducing position

  • Priority sorting of counterparties: Among the counterparties of the current account in a position loss, sort them by Unrealized PnL and Leverage used, and give priority to traders with high returns and high leverage for reducing positions.

  • Liquidation operation: The selected counterparty’s position will be closed according to the previous Oracle Price to hedge against the current position-shorting user.

  • Clearing liabilities: After the position reduction operation is completed, the platform ensures that no bad debts are left and maintains the stability of the overall capital pool.

Advantages and features

1、Full-chain transparent execution: The automatic liquidation process is completely executed by smart contracts, and all processes are open and transparent on the chain to ensure fairness and immutability.

2、Protecting the health of the ecosystem: Preventing the risk of a single account from spreading to all platform users, and maintaining systemic security through intelligent risk control.

3、Minimize losses: Reduce positions by giving priority to high-leverage, high-yield accounts, reducing the potential impact on ordinary users caused by counterparty margin calls.

The automatic position reduction mechanism is not only the last line of defense for the Diamonde platform, but also an important symbol of its advanced risk management capabilities. Through the transparent execution of smart contracts, precise counterparty prioritization logic, and strict asset protection measures, Diamonde can not only ensure its own stable operation in extreme market environments, but also provide users with a safe, transparent, and fair trading experience. This gives Diamonde a strong competitive advantage in the field of decentralized derivatives trading.

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