@lewisaudley

Frequent, clustered liquidations can indeed form a feedback loop where margin calls trigger sharp price moves, which in turn cause further liquidations. In leveraged environments, automated deleveraging and cascading stops amplify initial shocks, especially in thin markets. As liquidity providers widen spreads and reduce quoted sizes during stress, the market’s ability to absorb flow deteriorates, worsening volatility and inviting more liquidations. Mitigation comes from diversified liquidity provision, robust margining engines, circuit breakers, and staggered oracles for collateral revaluation. Recognizing rising liquidation density early—via funding spikes, compression in order-book depth, and growing open interest—helps anticipate and possibly avoid reinforcing loops.

0 reply

0 recast

0 reaction