Research Summary
The report discusses the liquidation engine of Unstoppable, a decentralized exchange (DEX). It compares Unstoppable’s liquidation process with other DEXs like GMX, Perpetual Protocol, and dYdX. The report highlights Unstoppable’s four-layer liquidation system, which includes an off-chain liquidation engine, an external liquidation engine, Chainlink smart contract automation, and a safety module.
Key Takeaways
Comparison of Liquidation Mechanisms
- GMX’s Liquidation Process: GMX triggers a liquidation when a user’s collateral minus unrealized loss & borrow fees falls below 1% of the open positions size. The remaining funds after liquidation are returned to the user’s wallet.
- Perpetual Protocol’s Liquidation Process: Perpetual Protocol triggers liquidation when a position’s margin ratio falls below 6.25%. Positions under $100 are subject to full liquidations, and positions higher than that are subject to partial liquidation.
- dYdX’s Liquidation Process: dYdX allows anyone to run their own liquidation bot to execute liquidations. The platform expects traders to maintain 115% collateral of their borrowed assets.
Unstoppable’s Four-Layer Liquidation System
- Layer 1 – The Unstoppable Liquidation Engine: This off-chain liquidation engine monitors all positions on the exchange. If the leverage of a position starts to exceed the maximum leverage allowed for that position’s market, it is automatically liquidated.
- Layer 2 – External Liquidation Engine: This layer allows third parties to create a liquidation bot and liquidate the position for the exchange. Unstoppable provides the liquidation engine in an open-source format so everyone can run their own bot.
- Layer 3 – Chainlink Smart Contract Automation: Unstoppable will integrate Chainlink’s automation capabilities into its system to create a higher-performance environment and further decentralize the engine via the Chainlink nodes.
- Layer 4 – Safety Module: This layer acts as a last resort to absorb bad debt if all other layers fail. Liquidity providers (LPs) are liable via the safety module in the worst-case scenario.
Actionable Insights
- Investigate the Potential of Unstoppable’s Liquidation Engine: Unstoppable’s four-layer liquidation system offers a robust and secure mechanism for handling liquidations. This system could be a model for other DEXs to enhance their liquidation processes.
- Explore the Use of Chainlink’s Automation Capabilities: Unstoppable’s integration of Chainlink’s automation capabilities into its system could offer insights into how other DEXs can leverage smart contract automation for improved performance and decentralization.
- Consider the Role of Safety Modules: The safety module in Unstoppable’s liquidation system acts as a last resort to absorb bad debt. This could be a valuable feature for other DEXs to consider in their risk management strategies.
