# Liquidations

### Liquidations

Liquidations are an essential mechanism in leveraged trading that protect the protocol and its users from the risks of undercollateralized positions. When a trader's account health falls below a required maintenance level, the system begins closing positions to prevent further loss and maintain solvency.

#### What Triggers a Liquidation?

On MUNE (powered by Orderly), liquidation occurs when an account’s **maintenance health** drops below zero. The process is fully automated and designed to prioritize system stability and fairness across all participants.

You can find market-specific risk parameters like **maintenance weights** in the [Perpetual and Spot Market Specifications](https://orderly.network/docs/introduction/trade-on-orderly/perpetual-futures/specs).

#### Liquidation Price

Liquidations on MUNE use **oracle mark prices** sourced from Orderly’s hybrid oracle system. These prices are calculated using a **Time-Weighted Average Price (TWAP)** from leading centralized exchanges.

When liquidators specify a product and amount to liquidate, the execution price is set **midway between the oracle mark price and the price determined by maintenance weight**.

#### Liquidation Process

When a liquidation is triggered, the following sequence occurs:

1. **Open orders** on the account are canceled.
2. **LP (liquidity provider) positions** are removed.
3. **Assets** (spot balances, long spreads, perps) are liquidated.
4. **Liabilities** (borrows, short spreads) are liquidated.

Liquidators can purchase the account’s assets at a discount or repay its liabilities at a markup. The goal is to bring the account’s **Initial Health** back above 0. If this threshold is met mid-process, liquidation halts immediately.

#### Liquidator Profit and Protocol Fee

* **Gross profit** for liquidators is the difference between execution price and fair market value.
* **50% of the profit** is collected by the protocol and directed to the **Insurance Fund**.
* **Net profit** for the liquidator = 50% of the execution margin.

This fee-sharing mechanism incentivizes liquidators while reinforcing platform stability.

#### Insolvency & Final Defense

If an account's liabilities cannot be covered (i.e., all liquidation options would push USDC balance below zero), the account is considered **insolvent**.

In this case, MUNE activates a series of defenses:

**1. Insurance Fund**

A segregated USDC pool funds losses from bankrupt accounts. Initially bootstrapped by the core team, the fund is continuously replenished from liquidation fees.

**2. Socialized Losses**

If the Insurance Fund is insufficient:

* Losses are socialized **within the same perpetual market**.
* If that fails, losses are spread across **all USDC holders** on the platform.

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#### Summary of Liquidation Waterfall

1. **Account liquidation** via oracle-based mark price.
2. **Insurance Fund** covers bad debt.
3. **Perpetual market socialization** of losses.
4. **Global socialization** against USDC depositors (as a last resort).

This robust liquidation architecture protects MUNE’s integrity while minimizing user impact.