Summary

GMX’s competitors have liquidation fees (sometimes referred to as “penalties”) that range from as low as 0% to as high as 100% of collateral. Hyperliquid has the largest range of possible liquidation fees but the lowest average realized liquidation fees, with most liquidations likely avoiding fees altogether. Gains, on the other hand, has the highest fees overall (60% to 100% of remaining collateral after negative PnL is taken into account), while Vertex and dYdX make up the middle at 0.6%-19.6% and 1%-32.67% of collateral, respectively. Lastly, Binance Futures has the simplest model, with a flat fee that varies from 0.75% to 2.25% of remaining collateral per market.

Vertex

Vertex takes a 25% cut of liquidators’ profits from liquidations. Liquidators’ profits, in turn, are calculated using the below formulas:

• Liquidation Price

  

  This formula determines the discounted price at which liquidators can acquire the liquidated trader’s collateral relative to the asset’s oracle-reported price. Source

  The maintenance_[asset/liability]_weight variables above correspond to the maintenance margin parameter in Vertex’s Perpetual and Spot Market Specifications table. Their standard values are 0.97 (for BTC and ETH) and 0.95 (for all other perp markets).

• Initial and Maintenance Health

  

  This formula determines the initial and maintenance “health” (margin) thresholds that traders must sustain in order to first open a position and prevent its liquidation. Source

The above two formulas, when applied to hypothetical positions, produce liquidation fees that range in value from 0.6% of the trader’s remaining collateral to 19.6% of their remaining collateral. This corresponds to a Vertex cut of between 0.15% and 4.9% of remaining collateral, respectively. Vertex’s cut of these fees is deposited into its insurance fund to provide backstop liquidity in the event of major protocol loss events.

Where within this range Vertex’s liquidation fee falls depends on both the position’s leverage level and Vertex’s maintenance_[asset/liability]_weight parameter. As a general rule, the lower the maintenance weight and the higher the leverage, the higher the liquidation fee as a percentage of remaining collateral. However, because a market’s max leverage is capped at $1/(1-Asset_{InitialWeight})$, Vertex’s maximum theoretical liquidation fee is higher on BTC & ETH than on long tail markets.

dYdX v4

With v4, dYdX reportedly increased its fixed liquidation fee to 1.5% of position size, up from 1% of position size in v3. However, from referencing the dYdX v4’s repo’s currently liquidations config, the fee appears to be set at 1%.

dYdX v4’s liquidation fee as a percentage of remaining collateral can be approximated by applying the following two dYdX formulas:

• Liquidation Price

  

  Source

  Note: MMF varies based on the trading pair’s “liquidity tier,” while BA is hard-coded at 1 and SMMR is hard-coded at 2 in dYdX’s liquidations config.

• Initial and Maintenance Margin

  

  Source

Upon combining the above two formulas and inserted the hard-coded parameters, the complete formula for determining dYdX v4’s liquidation price – that is, the price at which dYdX places a limit order on the dYdX v4 exchange on behalf of the trader once they enter into liquidation — is as follows:

$\displaystyle \text{Liquidation Price} = P \times \left( 1 - \left( \frac{2 \times \text{MMF}}{1 \times \left( 1 - \frac{\text{Remaining Collateral}}{\left| \text{Position Size} \times \text{Oracle Price} \times \text{MMF} \right|} \right)} \right) \right)$

From there, one can compute dYdX’s liquidation cost **to the trader as a percentage of the trader’s remaining collateral using the following formula:

$\displaystyle \text{Liquidation Cost\! \%}_{\text{Collateral}} = \frac{\text{Cur. Position Size} - (\text{Liq Price} \times \text{Units})}{\text{Remaining collateral}}$