Simple Summary
This proposal seeks to increase subaccount_block_limits.max_notional_liquidated from 100,000 USDC to 1,000,000 USDC to enhance the speed and efficiency of risk reduction during liquidations while keeping all other parameters unchanged.
Abstract
Some users have expressed concerns regarding deleveraging and liquidations on various community channels. To mitigate risks associated with forced deleveraging, this proposal seeks to adjust the liquidations configuration. The key change involves increasing the maximum notional liquidated per subaccount per block, allowing for faster liquidation processes and better risk management.
Motivation & Rationale
The dYdX Chain employs specific contract loss mechanisms to ensure the system remains solvent during extreme market conditions. The liquidation system is designed to enforce maintenance margin requirements, ensuring that under-collateralized positions are closed efficiently. However, the current subaccount_block_limits.max_notional_liquidated cap of 100,000 USDC per block may result in delayed liquidation processing, which can contribute to increased risk exposure and inefficient risk reduction.
Increasing the liquidation threshold helps to:
● Improve liquidation efficiency by enabling larger positions to be processed more swiftly.
● Reduce the risk of forced deleveraging by ensuring liquidations occur in a timely manner.
Specification
The proposal will change liquidations_config.subaccount_block_limits.max_notional_liquidated from 1e11 (100,000 USDC) to 1e12 (1,000,000 USDC).
Next Steps
This proposal is to gather feedback from traders and stakeholders on the proposed change. If the community does not object to the changes, we plan to submit the on-chain proposal on February 20, 2025.