Settlement Mechanism
Last updated
Last updated
Pacifica's contracts are continuously settled, meaning profits, losses, and funding payments are calculated and applied in real-time without an expiration date. Understanding this settlement mechanism is crucial for effectively managing your trades, margin, and risk.
Pacifica uses an hourly funding rate mechanism to keep perpetual prices closely aligned with the underlying spot price:
Positive funding rate: Traders holding long positions pay traders holding short positions.
Negative funding rate: Traders holding short positions pay traders holding long positions.
Funding payments occur automatically each hour and directly adjust your account balance.
Realized Profit & Loss (PnL): Realized PnL is calculated and applied immediately upon closing or partially closing a position. Profits or losses are instantly reflected in your trading balance.
Unrealized Profit & Loss: Unrealized PnL is continuously recalculated based on the . It affects your margin and liquidation thresholds but only becomes realized when the position is fully or partially closed.
Pacifica employs a three-tiered liquidation process to manage positions falling below maintenance margin requirements:
Initial liquidation attempt: Positions are initially liquidated by sending market orders into the orderbook. If the position is sufficiently reduced to meet margin requirements, the remaining collateral stays with the trader.
Backstop liquidation: If the orderbook liquidity is insufficient to absorb the entire position without severely impacting the market, the position (along with remaining collateral) is transferred to the Pacifica backstop liquidation vault. The vault systematically manages position closure to minimize market disruption.
Auto-Deleveraging (ADL) (last resort): Under extreme scenarios—such as very large positions significantly exceeding market liquidity—Pacifica employs Auto-Deleveraging, automatically closing opposing traders’ profitable positions based on risk priority to maintain overall market health.
Any collateral remaining after liquidation fees and slippage are deducted is returned to the user’s account. If liquidation losses exceed the collateral available, losses are first absorbed by the liquidation vault, and in extreme scenarios, covered by ADL.
In response to market incidents involving extreme position liquidations, Pacifica implements additional risk mitigation strategies within its settlement process:
Dynamic Margin Requirements: Pacifica dynamically adjusts initial and maintenance margin requirements based on open interest relative to orderbook liquidity. When large positions approach liquidity constraints, margin requirements automatically increase to ensure adequate collateral is retained.
Withdrawal Restrictions During Extreme Volatility: To prevent scenarios where traders withdraw collateral that might otherwise cover liquidations, Pacifica employs volatility-based withdrawal caps using an Exponentially Weighted Moving Average (EWMA) approach. During extreme market movements, traders may temporarily be unable to withdraw certain collateral amounts, reducing risk to the liquidation vault.
Collateral is continuously adjusted based on market prices and funding payments. This ensures accurate margin levels, liquidation thresholds, and fairness across all traders.
Settlement details, including realized/unrealized PnL, funding payments, and liquidation transactions, are transparently visible in your transaction history and via Pacifica’s API.
For further questions or clarifications, refer to our or contact our support team via the section.