Understanding Liquidation Price in Liquidity Mining

If you’re participating in liquidity mining with leverage higher than 1x, understanding your liquidation price is essential to managing risk. Your position will be automatically closed if the mark price reaches your liquidation price, which means you could lose your entire principal investment. For liquidity providers, the specific liquidation price is calculated when your product plan activates, roughly five minutes after your order is confirmed. You can check this figure anytime in your My Liquidity section.

When Does Liquidation Price Apply?

Liquidation price is relevant only when you’ve used leverage greater than 1x. Once you deposit liquidity into a pool, the system continuously monitors both the index price and contract trading price. If either falls to your liquidation price level, your position triggers liquidation—whether you’re actively holding or in the redemption process. The only way to eliminate liquidation risk entirely is to fully redeem your position.

How Is Your Liquidation Price Calculated?

The liquidation price formula helps you understand exactly when your position becomes vulnerable. Let’s walk through a practical example:

Scenario: Trader A deposits into the ETH/USDT pool with:

• Principal: 6,000 USDT
• Leverage: 2x
• Current Index Price: 3,000 USDT per ETH
• Total Liquidity: 12,000 USDT

The Formula:

Liquidation Price = 1.05 × Index Price × [(Trader’s Liquidity − Principal) / Trader’s Liquidity]²

Calculation: 1.05 × 3,000 × [(12,000 − 6,000) / 12,000]²
= 1.05 × 3,000 × 0.25
= 787.5 USDT

This means your position would liquidate if ETH price drops to 787.5 USDT.

Why Liquidity Mining Has Lower Risk Than Derivatives

You might notice that at 2x leverage, your liquidation price in Liquidity Mining (1/4 of entry price) is significantly safer than in Derivatives Contracts (1/2 of entry price). This structural difference means liquidity miners enjoy greater downside protection—your position gets more buffer before triggering a forced closeout.

Reducing Your Leverage to Lower Liquidation Risk

The best way to prevent liquidation is to reduce your leverage when you sense increasing market risk:

Step 1: Open My Liquidity and select More → Reduce Leverage

Step 2: Choose which pool to adjust and input your desired USDT amount

Step 3: Review your new liquidation price threshold, then click Confirm

Important note: The USDT you add doesn’t enter the pool—it goes toward repaying borrowed funds. This increases your principal while keeping total liquidity constant, effectively lowering your leverage ratio.

Maximum USDT limit: You can add up to your total loan amount. When you reach this maximum, your leverage automatically reduces to 1x, eliminating all liquidation risk for that position.

Remember: Adding capital to reduce leverage is your safest tool for managing liquidation price exposure and protecting your investment.