Liquidation Examples

Four examples with illustrative numbers. All start from a position at the 50% maximum, which is the riskiest place to be.

1. A partial liquidation

You deposit 100 NVDA at $120 ($12,000) and borrow $6,000 (50% LTV). NVDA has a 58.8% threshold and an 8.8% penalty.

  1. NVDA falls to $108. Collateral $10,800, LTV 55.6%. Nothing happens.
  2. NVDA falls to $101. Collateral $10,100, LTV 59.4%. Liquidation starts.
  3. Spout sells about 22.8 tokens for about $2,306. The $203 penalty goes to the Insurance Fund, after any cost of closing calls, and $2,103 repays your loan.
  4. You hold about 77.2 tokens worth $7,794 against a $3,897 loan. LTV is back to about 50%.

2. A full liquidation

Same position, same fall to $101, but Auto buyback is off. Spout sells all 100 tokens for $10,100, repays the $6,000 loan, takes the $889 penalty, and sends you $3,211. Your position is closed.

3. A weekend gap

Same starting position. NVDA closes Friday at $110 (LTV 54.5%, below the threshold). Bad news over the weekend and it opens Monday at $90, an LTV of 66.7%. Because liquidations run in market hours, the first sale is at Monday's price:

  1. Spout sells about 40.5% of the position: about 40.5 tokens for $3,641.
  2. The $320 penalty is taken and $3,320 repays the loan.
  3. You keep about 59.5 tokens worth $5,359 against a $2,680 loan, back at 50% LTV.

Had NVDA opened at $65, LTV would be 92.3%, above the 91.2% at which a partial sale can still restore NVDA. The whole position would be sold for $6,500. After the $6,000 loan, only $500 is left, and the $572 penalty takes all of it. You would receive nothing.

4. A volatile asset

You deposit 100 MSTR at $300 ($30,000) and borrow $15,000. MSTR has a 62.5% threshold and a 12.5% penalty. MSTR falls to $236: collateral $23,600, LTV 63.6%.

  1. Spout sells about 36.2% of the position: about 36.2 tokens for $8,533.
  2. The $1,067 penalty is taken and $7,467 repays the loan.
  3. You keep about 63.8 tokens worth $15,067 against a $7,533 loan.

What would have helped

Borrowing less. Had you borrowed $4,000 against the 100 NVDA instead of $6,000, NVDA would have had to fall below about $68, about 43%, before anything was sold. That avoids examples 1 and 2 and the $90 gap in example 3, though not a gap all the way to $65. On MSTR, borrowing $10,000 instead of $15,000 moves the liquidation price to $160, a fall of about 47%.