How does f(x) Protocol minimize liquidations?
Last updated
Last updated
f(x) Protocol uses its rebalancing mechanism to minimize any risk of liquidation. This means scenarios where a sudden market drop that would normally liquidate your entire long position just before a rally are unlikely to occur. However, this doesn't eliminate the risk of losing money as leverage amplifies both potential gains and losses.
xTokens (v1): In highly extreme scenarios, leveraged xTokens could potentially lose all of their value. However, the protocol's primary goal is to prevent this. Multiple Stability Mechanism are in place to ensure this doesn't happen.
xPOSITION (v2): If your position reaches a price level that would normally trigger liquidation on a regular perpetual exchange, it will instead be rebalanced to a different leverage level. While this operation incurs a small fee, it keeps you as much as possible exposed to the market, giving you a chance to recover. In extreme cases where the rebalancing operation fails, liquidation may occur to protect fxUSD's backing and peg. But there is a very small risk of this occurring. Learn more by following the link below.