Automatic Deleveraging
The stability and solvency of the platform is of paramount importance. The health of the central pool ensures that trades can be executed at any size, and that risks are mitigated.
Surge incorporates a fail-safe mechanism that protects the pool in the event that these risk thresholds are breached. For example, assume a number of leveraged positions are particularly profitable at a period in time. The pool requires adequate capital to ensure that if those positions are closed, the profits can be paid to traders and the platform can continue to function with sufficient liquidity.
In the rare event that open positions create a situation where the liquidity of the pool might be at risk, the system (via Keepers) may force-close some positions.
The criteria for automatically deleveraging a position are as follows:
The market imbalance (skew risk) exceeds 100%.
The position's return on investment (ROI) is above the threshold, which decreases as skew risk increases.
Closing the position reduces risk to the central pool.
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