How Does a DEX Prevent Liquidation Cascading? ⎊ Path

How Does a DEX Prevent Liquidation Cascading?

A DEX prevents liquidation cascading by using stable, oracle-fed mark prices (often TWAP-based) instead of the volatile last traded price to trigger liquidations. Additionally, some DEXs employ a staged liquidation process or a backstop liquidity system to absorb the impact of large liquidations, preventing them from destabilizing the protocol's overall liquidity.

How Do Circuit Breakers on an Exchange Prevent a Cascading Margin Call Failure?

What Is the Difference between a “Mark Price” and a “Last Traded Price” on a Derivatives DEX?

What Is an “Iceberg Order” and When Is It Preferred over TWAP in Low Liquidity?

How Does the Depth of the Order Book Influence the Price Movement from a Large Order?

What Is the “Order Book” and How Does It Reflect Market Depth?

Why Might a Large TWAP Order Be Broken up across Multiple Exchanges (Fragmentation)?

What Is the Function of a ‘Backstop Liquidity’ Facility in a DeFi Lending Protocol?

How Does the “Mark Price” Used in Perpetual Futures Differ from a Standard Oracle Price Feed?

Glossar

Liquidation Cascading

Contagion ⎊ This phenomenon describes the rapid, self-reinforcing sequence of forced deleveraging events across a derivatives market, often triggered by an initial price shock.