How Does a Smart Contract Enforce the Margin Call Process for a Perpetual Futures Contract?
The smart contract continuously monitors the maintenance margin level of a user's position against the current mark price. If the margin ratio falls below a predefined threshold, the contract's liquidation function becomes callable.
A 'keeper' bot or another user can then call this function, which automatically liquidates a portion of the collateral to cover the deficit and bring the margin back to a safe level.
Glossar
Margin Call Process
Process ⎊ The margin call process, within cryptocurrency, options, and derivatives, represents a formalized procedure initiated by a lender or exchange when a trader's account equity falls below a predetermined maintenance margin level.
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.
Maintenance Margin Level
Collateral ⎊ The maintenance margin level, within cryptocurrency derivatives and options trading, represents the minimum equity a trader must maintain in their account relative to their margin requirements.
Perpetual Futures Contract
Mechanism ⎊ Describes the unique funding rate system that replaces traditional expiry dates, aligning the contract price with the underlying spot market.
DeFi Derivatives
Volatility ⎊ DeFi derivatives represent synthetically created financial contracts whose value is derived from underlying cryptocurrency assets, extending traditional derivative functionalities ⎊ like futures, options, and swaps ⎊ onto decentralized blockchain networks.
Perpetual Futures
Contract ⎊ Perpetual futures represent a type of financial derivative contract, specifically within the cryptocurrency and options trading space, that replicates the payoff of a traditional futures contract without a fixed expiration date.