Liquidation Partner Program

The Liquidation Partner Program (LPP) is a system through which external participants can contribute to the liquidation process on Katana Perps. Liquidation partners help maintain the health and solvency of the platform by assisting with the orderly closure of under-margined positions.

What Is Liquidation?

When a trader's account margin falls below the required maintenance level, their positions become eligible for liquidation. Liquidation is the forced closure of positions to prevent the account from falling into negative equity, which would create losses that other market participants would need to absorb.

On Katana Perps, the liquidation engine operates off-chain alongside the matching engine, enabling fast and efficient position closures. The smart contract enforces the rules and validates all liquidation transactions on-chain.

How the LPP Works

Liquidation partners are external participants who are authorized to take over liquidated positions. When a position is liquidated:

1

Identification

The liquidation engine identifies the under-margined account and determines which positions must be closed.

2

Transfer at Discount

Liquidation partners receive the liquidated positions at a small discount, compensating them for the risk of absorbing and unwinding the position.

3

Fee Sharing

The liquidation fee collected from the liquidated account is shared between the protocol and the liquidation partners.

Becoming a Liquidation Partner

The LPP is designed for professional participants with the infrastructure and capital to absorb and manage liquidated positions. If you are interested in becoming a liquidation partner, please contact the Katana Perps team for onboarding details and technical requirements.

FAQ

Does liquidation close my entire account?

Not necessarily. The liquidation engine closes only enough positions to bring the account back above the maintenance margin threshold. If partial closure is sufficient, the remaining positions will stay open.

What happens if there are no liquidation partners available?

Katana Perps includes auto-deleveraging (ADL) as a backstop mechanism. In rare cases where liquidation partners cannot absorb the position, ADL automatically reduces the positions of the most profitable opposing traders. ADL is a last-resort mechanism designed to protect the system from socialized losses.