How Does Market Manipulation Affect the Liquidation Process on a CEX?
Manipulators can attempt to artificially move the price (a "pump and dump" or "spoofing") to trigger liquidations of opposing positions, profiting from the forced selling. While CEXs use a "mark price" to mitigate this, sustained manipulation can still force the mark price down, triggering a cascade of liquidations and accelerating a death spiral.
Glossar
The Liquidation Process
Process ⎊ The liquidation process is the automated, irreversible sequence of events triggered when a leveraged position's collateral value falls below the minimum maintenance margin required by a derivatives or lending protocol.
Mark Price
Valuation ⎊ The Mark Price within cryptocurrency derivatives represents a fair value estimation, calculated to mitigate price manipulation and ensure orderly market functioning, particularly during periods of low liquidity or volatility.
Market Manipulation
Detection ⎊ Identifying sophisticated market manipulation, such as layered spoofing or coordinated pump-and-dump activity, requires advanced, real-time analysis of order flow data.