Liquidation System

The Symmio Options Protocol includes a robust liquidation system, designed to manage counterparty risk and maintain systemic solvency. Liquidation processes are orchestrated by the Symmio Clearing House, which acts as the protocol's enforcement and settlement authority.

Liquidation Workflow

The liquidation process is composed of three core stages:

Step 1: Flagging

• The Clearing House can flag accounts that appear insolvent based on external solvency checks.

• Flagging creates a LiquidationDetail entry with status FLAGGED.

• The protocol provides distinct flagging functions for different margin types (e.g., isolated, cross) and parties (Party A or Party B).

• Once flagged, the account enters a grace period during which it may recover solvency before liquidation is enforced.

Step 2: Liquidation Execution

• After the grace period, if the account remains insolvent, the Clearing House may execute liquidation.

• Upon execution, the liquidation status is updated from FLAGGED to IN_PROGRESS.

• The collateral price and unrealized PnL (UPNL) at the time of liquidation are recorded to determine accurate settlement amounts.

• Relevant cross-margin balances are zeroed out and redistributed or seized as required.

Step 3: Cancel Intents, Close Trades, and Adjust Balances

• After execution, the Clearing House finalizes balance adjustments for all affected parties.

• Some balance changes may already occur during Step 2 (e.g., during cross balance resets), but this step ensures all final deltas are correctly applied.

• The liquidated party must not retain any open intents or open trades:

  • The Clearing House forcibly cancels any remaining intents.

  • It also closes all active trades associated with the liquidated party.

  • This guarantees a clean state for system integrity.

Liquidation States

State	Description	Next Actions
FLAGGED	Account flagged as insolvent	Execute liquidation or unflag if recovered
IN_PROGRESS	Liquidation actively being processed	Close trades, confiscate assets, distribute collateral
CANCELLED	Flagged liquidation cancelled due to recovery	Return to normal operation

Liquidation Types

1. Isolated Party B Liquidation

Used when Party B becomes insolvent in isolated margin mode when Party A buys option from Party B :

// Flagging
flagIsolatedPartyBLiquidation(address partyB, address collateral)

// Execution
liquidateIsolatedPartyB(address partyB, address collateral, int256 upnl, uint256 collateralPrice)

// Unflagging (if Party B recovers)
unflagIsolatedPartyBLiquidation(address partyB, address collateral)

Trigger Conditions:

• When total loss of open positions exceeded from loss coverage of isolated balance.

• isolatedBalance + (effectiveUpnl * 1e18) / collateralPrice < 0

• Where effectiveUpnl = upnl > 0 ? upnl : (upnl * lossCoverage) / 1e18

• There is no balance changes in this liquidate function

2. Cross Party B Liquidation

Used when Party B becomes insolvent in cross margin mode:

// Flagging
flagCrossPartyBLiquidation(address partyB, address partyA, address collateral)

// Execution
liquidateCrossPartyB(address partyB, address partyA, address collateral, int256 upnl, uint256 collateralPrice)

// Unflagging
unflagCrossPartyBLiquidation(address partyB, address partyA, address collateral)

Trigger Conditions:

• When Party B’s cross loss of open trades with an specific Party A exceeded from loss coverage of cross balance.

• crossBalance.balance + (effectiveUpnl * 1e18) / collateralPrice < 0

• Where effectiveUpnl = upnl > 0 ? upnl : (upnl * lossCoverage) / 1e18

Liquidation Process:

• Remaining cross balance transferred to Party A via scheduled release

• All cross margin entries (balance, locked, totalMM) reset to zero

• Liquidation status advanced to IN_PROGRESS

3. Cross Party A Liquidation

Used when Party A becomes insolvent in cross margin mode:

// Flagging
flagPartyALiquidation(address partyA, address partyB, address collateral)

// Execution
liquidateCrossPartyA(uint256 liquidationId, int256 upnl, uint256 collateralPrice)

// Unflagging
unflagPartyALiquidation(address partyA, address partyB, address collateral)

Trigger Conditions:

• (crossBalance.balance - totalMM) + (upnl * 1e18) / collateralPrice < 0

• Party A's available balance insufficient to cover maintenance margin plus losses

Liquidation Process:

• Remaining cross balance transferred to Party B via scheduled release

• All cross margin entries reset to zero

• Liquidation proceeds to position closure phase

Clearing House Operations

Clearing House also has some shared methods for closing, cancelling and balance changing.

Trade Closure During Liquidation

closeTrades(uint256 liquidationId, uint256[] memory tradeIds, uint256[] memory prices)

Process:

• All specified trades must belong to the liquidated parties

• Trades are closed at liquidator-provided prices

• Trade status changed to LIQUIDATED

• Associated close intents cancelled

Asset Confiscation

confiscatePartyA(uint256 liquidationId, uint256 amount)
confiscatePartyBWithdrawal(uint256 withdrawId)

Party A Confiscation:

• Removes specified amount from Party A's cross balance

• Used to cover liquidation costs and losses

• Requires sufficient available balance

Party B Withdrawal Confiscation:

• Cancels pending Party B withdrawals during liquidation

• Returns withdrawn amount to Party B's isolated balance

• Prevents capital flight during liquidation process

Collateral Distribution

distributeCollateral(
    address partyB,
    address collateral,
    MarginType marginType,
    address[] memory partyAs,
    uint256[] memory amounts
)

Process:

• Distributes Party B's remaining collateral among affected Party A accounts

• Uses scheduled release system for secure transfers

• Proportional distribution based on losses and exposure

• Ensures total distribution doesn't exceed available balance

Intent Cancellation During Liquidation

Open Intent Cancellation:

cancelOpenIntents(uint256[] memory intentIds)

Close Intent Cancellation:

cancelCloseIntents(uint256[] memory intentIds)

Cancellation Logic:

• Only cancels intents involving insolvent parties

• Handles fees and premium refunds appropriately

• Expired intents processed through normal expiration flow

• Prevents further trading by liquidated accounts