Liquidation Mechanics
Quanto.trade employs specific liquidation mechanics.
Overview
To preserve platform solvency and minimize the risk of cascading losses, Quanto.trade implements a structured and automated liquidation mechanism. This system ensures that undercollateralized positions are addressed swiftly and fairly when a trader's portfolio falls below the required maintenance margin thresholds.
Note: if an account incurs non-QTO collateral on their balance sheet, the losses will show as negative QTO (-QTO) also known as QTO debt, this debt will be reimbursed with future losses or in case of account liquidation by converting the non-QTO collateral into QTO tokens.
When Liquidation Is Triggered
A liquidation event is triggered when the value of a trader’s collateral, adjusted by its applicable Loan-to-Value (LTV) ratio, becomes insufficient to meet margin requirements. This can occur due to:
A drop in the market value of the collateral.
Adverse price movement of the underlying asset.
An increase in the value of $QTO, which serves as both the margin and settlement currency.
Any combination of the above, particularly under cross-margin conditions.
In some cases, liquidation can also be triggered even if no positions are open—for example, when a user holds only non-QTO assets and has a negative $QTO balance. In such situations, those assets will be automatically converted into $QTO to cover the debt.
Once the account’s margin health falls below the maintenance threshold, the liquidation engine initiates liquidation to restore solvency.
Liquidation Process & Priority
Rather than liquidating the entire account at once, Quanto.trade may perform partial liquidations—selling just enough position size to bring the account back within margin compliance. This is aimed at preserving the trader’s capital while protecting the integrity of the platform.
Liquidation priority follows a defined logic:
Highest LTV Ratio First Positions using higher-risk collateral (i.e., those with higher LTV ratios) are targeted first, as they pose a greater risk of insolvency to the system.
Largest Position Size Second If two or more positions share the same LTV, the larger notional position will be prioritized for liquidation. This approach minimizes systemic exposure and prevents larger losses from snowballing.
This prioritization ensures that risk is reduced in the most efficient and platform-safe manner possible.