✨No Liquidation Fees

As discussed previously in Peer-to-Pool Perp Model (and the risks as a Liquidity Provider), liquidations are not as important as they are on order-book based DEXes.

Let's unravel the details and why we can have 0 additionnal fees for liquidations (the usual position closing fees is taken, as if you closed manually).

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On Adrena, if you get into liquidation territory, we will simply close the position for you, taking the usual close position fee. That's all, no extras.

Seems weird? Well it's actually pretty logical.

Liquidation fees, accepted by most traders, exist because they are essential to incentivise timely decentralised liquidation on ORDER-BOOK based DEXes. Since these platforms are PvP, if liquidation don't happen when they should, someone must be paid with missing funds, accruing bad debt.

The high liquidation fee makes sense, it allow the platform the run smoothly and for everyone to be paid.

Now... On an asset backed perp DEX, it's PvE. Traders borrow funds from the LP to leverage their trade, they pay for this at open and close a % fee, and over time as long as the position is open. The optimal state for Liquidity providers is to have positions Open and Close as much as possible and to lend all of the available liquidities.

If a liquidation does not happen timely, worse case is loosing on the fees. It is not desirable, but it is not as detrimental for us as it is for order-book based DEXes.

As such, we think it's hardly justifiable to kick a dead body by adding a substantial extra liquidation fee to loosing traders.

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At launch Adrena team will be running liquidation script pro bono, there is no incentive. The code will be open source. Soon after, we plan to have liquidation fully on chain using Sablier (see On-chain Automation Instead of Keepers), removing the need for third party, having the user setup his own future hypothetical liquidation when opening a trade, and cancelling it on close (or getting liquidated). This allow a system without liquidation fees.