Module 2.3｜Liquidation In NX

NX Finance Liquidation Mechanism (TL;DR)

You can directly check the Liquidation Price if you're not a big fan of Math

Liquidation Formula

$\text{Loan Value > (Collateral Value + JLP Value) × Safe Collateral Line (95\%) || Collateral Value = 0}$

Breakdown

• Loan Value = Number of Borrowed Tokens × Loan Token Price

• Collateral Value = Number of Collateral Tokens × Collateral Token Price

• JLP Value = Number of JLP Notes × JLP Price

Example of Liquidation with NX Finance

Scenario:

• You deposit 250 JLP as collateral (worth $1,000 at $4 per JLP)

• You borrow 4,000 USDC using 5x leverage

• Current borrow rate: 34.3% (due to 89.3% utilization rate)

• Safe Collateral Line: 95%

Leverage Ratio	JLP Price ($)	Collateral (JLP)	Borrowed (USDC)	Total Position (USDC)	Safe Threshold (USDC)	Price Drop to Liquidation (%)
2x	4.00	250	1000	2000	950	52.50
3x	4.00	250	2000	3000	950	36.67
4x	4.00	250	3000	4000	950	28.75
5x	4.00	250	4000	5000	950	24.00
6x	4.00	250	5000	6000	950	20.83
7x	4.00	250	6000	7000	950	18.57

Why Higher Leverage Ratios Lead to Higher Liquidation Risk

With NX Finance's 95% liquidation threshold, the risk of liquidation increases dramatically with higher leverage. Let's compare different leverage ratios:

With higher leverage ratios:

• You borrow more relative to your collateral.

• Even small price drops in your collateral or JLP can push your loan value above the safe collateral threshold

Practical Tips for Managing Liquidation Risk on NX Finance

Given the high liquidation threshold, consider these tips:

1. Use very conservative leverage ratios (e.g., 1.5x or 2x) until you're extremely comfortable with the platform's mechanics.

2. Use very conservative leverage ratios (e.g., 1.5x or 2x) until you're extremely comfortable with the platform's mechanics.

3. Consider setting up alerts for price movements of the assets you're using as collateral.

4. Always have additional collateral ready to deposit quickly if needed to avoid liquidation.

5. Understand that the 95% threshold leaves very little room for error, so be prepared to act fast in volatile markets.

Key Takeaway

1. NX Finance's 95% liquidation threshold means positions can be liquidated with very small price movements.

2. Higher leverage ratios dramatically increase the risk of liquidation, even with minor market fluctuations.

3. Constant monitoring and quick action are essential when using leverage on this platform.

4. Consider using lower leverage ratios to provide more buffer against price volatility.