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How Liquidation Works

We liquidate your position when your health drops to 45%. Health measures how much equity you have left relative to your margin:
When you open a position, health starts at 100%. As the market moves against you, health decreases. At 45%, we close your position.

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Two-Phase Liquidation System

When a position reaches the liquidation threshold, we use a two-phase system designed to protect both the vault and the underlying market.

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Phase 1: Direct Liquidation

For smaller positions, we liquidate directly on Polymarket.
1

Position Sold

We sell your shares on Polymarket immediately
2

Vault Recovery

The vault recovers its borrowed capital
3

Margin Lost

You lose your remaining margin (no refund on liquidation)
This is fast and simple. For small positions, the market impact is negligible.

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Phase 2: Dutch Auction

For larger positions, selling directly on Polymarket would cause significant market impact—potentially triggering cascading liquidations or manipulating the underlying market. Instead, we run a Dutch auction.
Why not just sell on Polymarket? Large sells can move markets 5-10% or more. This hurts price discovery, can trigger other liquidations, and doesn’t get the best recovery for the vault. The Dutch auction solves all three problems.

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How the Dutch Auction Works

1

Auction Starts

The underwater position is listed at a starting discount from current market value
2

Price Decreases

The asking price decreases over time (the “Dutch” mechanism)
3

Liquidator Bids

The first liquidator to accept the current price wins the position
4

Shares Transfer

The position’s shares transfer directly to the liquidator’s account
5

Vault Recovers

The vault receives the liquidator’s payment, recovering its lent capital

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Why This Is Better

Position inherits the same close date. If you buy a liquidated position via Dutch auction, you inherit its original time-boxing. The close date doesn’t reset.

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Fallback to Phase 1

If no liquidator bids before the auction deadline, we fall back to Phase 1 and sell directly on Polymarket. This ensures positions are always closed promptly.

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What Happens to Your Margin

Liquidation is final. There’s no partial liquidation or margin call. Once you hit 45% health, the position closes entirely—either via direct sale or Dutch auction.
In both phases:
  • The vault recovers its borrowed capital first
  • Any auction discount or slippage comes from your remaining margin
  • You lose your remaining margin (no refund on liquidation)

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Avoiding Liquidation

Use Lower Leverage

5x gives you roughly twice the buffer before liquidation compared to 10x.

Watch Your Health

The dashboard shows real-time health for all positions.

Close Manually

If a trade isn’t working, exit before liquidation locks in the maximum loss.
At 10x leverage, a ~5.5% move against you triggers liquidation. Prediction markets can move 5% in minutes on breaking news. High leverage requires active monitoring.

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For Liquidators

Interested in participating in Dutch auctions? Liquidators play an important role in the Ultramarkets ecosystem by:
  • Providing liquidity for distressed positions
  • Earning discounts on positions they believe will recover
  • Helping maintain system health without market impact
Liquidator documentation and API access coming soon.