Autoexchange and Liquidations

Auto-exchange

Auto-exchange automatically converts any of your collateral tokens to rUSD to ensure your margin account can satisfy its settlement obligations in rUSD. For example, if you suffer losses in rUSD and run a negative balance in rUSD. Also, when your account becomes liquidateable. The system will try to convert only as much collateral as possible, but it will do so at a penalty. You can avoid these penalties by carefully managing your collateral tokens and making sure you do not run negative balances, and remain above liquidation margin requirement.

Liquidation

When your margin account drops below its Liquidation Margin Requirement (LMR), Reya’s liquidation module will be triggered to close exposure in your account until it comes back above LMR. If enough losses accrue, all of your positions might be closed completely.

In the event that your account becomes insolvent, the Insurance Fund will try to cover the losses and, if it is unable, the system will socialize the losses. Liquidation fees are imposed on the liquidated account to replenish the Insurance Fund (although they are also partly shared with Backstop LPs, who also play a role in keeping the system solvent).

Auto-deleveraging

Auto-deleveraging (ADL) is a last resort solution for when an account in the system goes insolvent. The system will forcefully close the positions of a liquidated account against all users in the opposite side. If the Insurance fund can cover the account’s insolvency, this closure will happen at market prices, and users will only see their future accrual of PnL curtailed. However, in extreme cases, the system might need to push those positions at a loss to users to preserve the solvency of the pool. ADL should be rare, if unpleasant occurrence, necessary to ensure that there are always enough funds in the pool to cover outstanding olbigations.