Perp Mechanics

This page explains the core perpetual-market mechanics used by perps. in Mainnet Beta.

Mark Price vs Index Price

• Index price is the external/reference price path used by the system.

• Mark price is the internal execution and PNL reference used for position state.

• Trading, unrealized PNL, and liquidation checks are driven by mark/index relationships.

Funding

• Funding is the mechanism that helps align perp pricing with underlying spot behavior.

• When perps trade above spot reference, longs typically pay shorts.

• When perps trade below spot reference, shorts typically pay longs.

• Funding values shown in UI are market-state dependent and may change as positioning changes.

Margin and Leverage

• Positions are opened with posted margin (collateral).

• Leverage scales notional exposure relative to margin.

• Higher leverage increases sensitivity to price moves and liquidation risk.

• Maximum leverage depends on market and risk settings.

Liquidation Basics

• A position can be liquidated when margin is no longer sufficient for maintenance requirements.

• Liquidation thresholds depend on entry price, side (long/short), position size, and margin.

• The liquidation price shown in UI is an estimate under current market conditions.

Liquidation Formula

In PerpEngine, liquidation is triggered when:

marginRatio < 1000 (BPS), i.e. below 10%.

Where:

• marginRatio = (equity / currentNotional) * 10,000

• equity = margin + pnl + fundingPayment

And currentNotional is computed from the vAMM using the notional required to close the position at current curve state (not a fixed linear mark-only model).

Equivalent trigger condition:

margin + pnl + fundingPayment < 0.10 * currentNotional

Side-Specific Form (using contract PnL definitions)

• Long: pnl = currentNotional - openNotional

• Short: pnl = openNotional - currentNotional

So liquidation boundary can be written as:

• Long: margin + fundingPayment + currentNotional - openNotional < 0.10 * currentNotional

• Short: margin + fundingPayment + openNotional - currentNotional < 0.10 * currentNotional

Simplified Price Approximation (educational)

If you ignore vAMM slippage and funding, and approximate notional as |size| * price:

• Long liquidation price (approx): P_liq ≈ (P_entry - margin/|size|) / 0.9

• Short liquidation price (approx): P_liq ≈ (P_entry + margin/|size|) / 1.1

These are directional guides only. The on-chain liquidation check uses the exact vAMM notional and funding-adjusted equity.

Execution and Slippage

• Orders are constrained by market conditions and slippage bounds.

• If execution deviates beyond the allowed threshold, the transaction can revert.

• During fast moves or low liquidity, fills can be harder and execution risk increases.

Practical Notes for Users

• Start with lower leverage when testing a new market.

• Review entry, estimated liquidation, and fees before confirming.

• Keep margin management active after entry, not only at open.

Current Risk Controls

The current hardening branch adds the following risk controls at the contract level:

• maximum market open interest caps

• maximum market skew caps

• maximum position notional caps

• a global pause switch for opening new positions

• insurance-fund accounting

• market-level realized bad-debt tracking

These controls are part of the platform's move from MVP behavior toward production-grade risk boundaries.