Liquidations and trading limits
When is a position liquidated?
The liquidation threshold includes an approximately 5-basis-point buffer relative to the price where the position's equity reaches zero. Crossing the threshold forfeits the full margin.
At 100× leverage, liquidation occurs when roughly 95% of margin has been lost; at 1,000×, roughly 50%. The remaining margin goes to the LP. A 2% liquidation fee is carved out when fee-collection conditions are met. The full margin is the minting base, subject to the holding-time weight.
Position and open-interest limits
| Market | Maximum notional per position | Keeper-maintained open-interest headroom |
|---|---|---|
| U.S. stocks, BTC and ETH | $10 million | $1 billion above current open interest |
| BNB | $1 million | $100 million above current open interest |
Limits are per position; the number of positions is not limited. Open-interest limits are expressed in underlying-asset units and limit new exposure, not existing positions. The keeper maintains them using the corresponding headroom above current positions and resets them only when they drift more than 10% from the target. BNB starts lower because its markets are thinner and its oracle price is easier to move; the limits may be raised after launch.
Can losses be farmed?
Opening an offsetting long and short yourself and letting one side lose does mint TACO, but it is not free. The winning leg pays the price buffer, the asymmetric deduction and the 2% profit fee, which on a 1% move costs roughly $0.139 ÷ mint rate per TACO minted (about $0.0014 at the initial rate of 100). If TACO trades above that cost on a DEX, farmed tokens sold there push the price back toward it, so the farming cost acts as a soft ceiling. The holding-time weight means positions that last seconds mint very little, and the retained profit stays in the LP, which advances the declining mint curve.
How does the protocol manage LP exposure?
The protocol applies profit buffers, asymmetric deductions, liquidations and position limits. These rules do not eliminate the LP's exposure to profitable positions. The pool is not hedged and can run short of liquidity, in which case unpaid profit enters the settlement queue.
What happens if a price is wrong?
The contract rejects invalid prices: a bad signature, a zero price, or crossed bid and ask. There is no price-deviation circuit breaker. A pause guardian can stop new position openings globally; closing and liquidation continue, and only the owner can resume. The guardian can also permanently delist a market: its bid and ask are frozen, positions can only be closed or liquidated at the frozen price, and the delisting cannot be reversed.