Liquidations

Liquidations can happen for several reasons, mostly related to:

• Price movements: price goes against you, your margin loses value and your position goes underwater.

• Rates changes: rates move against you, eat into your profits and your position goes underwater.

Given the architecture of the protocol, all liquidations are carried out by the underlying money markets, not on Contango.

On Contango, the reference price used for liquidations is the mark price, which is the ongoing oracle price used by the underlying money markets. This could be different from the price shown on the charts. In order to plot charts Contango picks the chain where Chainlink has both the lowest heartbeat and the lowest deviation, so as to make the chart as responsive as possible. This means that the chart is indicative and it’s not specific to the selected money market. Prices on charts should be seen as mid-market prices, for reference purposes only.

Just like with some money markets where there is a distinction between max LTV ratios and liquidation thresholds, on Contango there’s a max leverage to open a position and a higher leverage threshold at which traders get liquidated. Contango adds around an extra 2.5% liquidation buffer on markets that don't differentiate between max LTV and liquidation threshold. This is meant to spare users from nasty surprises.

Money market might have different liquidation penalties. The liquidation penalty is a fee paid on the price of assets of the collateral when liquidators purchase it as part of the liquidation process.

Before trading → always make sure you understand the risks of liquidations and monitor your position health by looking at your liquidation price and minimum margin; also check the details of how the liquidation process work for each money market in their docs.