Margin, Liquidation and Loss Allocation Rules
Updated: 9 May 2026
Table of Contents
1. Status of these rules
1.1 These Margin, Liquidation and Loss Allocation Rules form part of the Trading Rules incorporated into the Terms of Use.
1.2 These rules apply to margin, collateral, liquidation, partial liquidation, auctions, position transfer, cash settlement, forced settlement, insurance fund usage, security module usage, clawback, socialised loss, delayed settlement, adjusted settlement, and other risk or loss allocation processes associated with the Application or Derive Protocol.
2. User responsibility
2.1 You are responsible for monitoring your margin, collateral, positions, account health, liquidation risk, settlement risk, and expiry risk at all times.
2.2 The Application may display account health, margin, liquidation, mark price, collateral, or other risk information, but no display is guaranteed to be accurate, complete, current, continuous, or sufficient for your purposes. You must not rely solely on Application-displayed risk information for margin management, position monitoring, or liquidation risk assessment. You are responsible for independently verifying your margin, collateral, and position status.
2.3 You must maintain sufficient collateral and margin for all positions and potential obligations.
3. Liquidation and risk management
3.1 The Derive Protocol may liquidate, partially liquidate, auction, close, transfer, deleverage, cash-settle, force-settle, or otherwise adjust positions or collateral where required by the applicable risk framework, smart contract design, governance decision, market integrity process, liquidation process, or settlement process.
3.2 Liquidation or risk management processes may occur automatically, algorithmically, manually through available Application functionality or governance processes, through smart contract functions, through auctions, through RFQs, through third-party liquidators, through market makers, through governance, or through related operational processes.
3.3 Liquidation may occur earlier, later, differently, partially, or fully depending on market conditions, liquidity, risk parameters, account state, collateral type, market maker activity, oracle conditions, settlement conditions, and technical or operational constraints.
3.4 Where you become aware of any actual or suspected technical issue, oracle disruption, system malfunction, collateral issue, or other matter that may affect your margin, liquidation risk, or account health, you must notify us as soon as reasonably practicable. We are not responsible for losses arising from your failure to notify us of matters that were or ought reasonably to have been known to you.
3.5 Liquidation prices, auction prices, forced settlement prices, and related values used in connection with any liquidation or risk management process are determined by the applicable protocol, smart contract, risk framework, oracle values, mark prices, and market conditions at the relevant time. Such prices may differ from prevailing mark prices, theoretical values, last traded prices, or prices available on comparable venues, and no guarantee is made as to the price at which any position will be liquidated, auctioned, closed, or settled.
4. Insurance fund, clawback and socialised loss
4.1 In extreme circumstances, including market disruption, liquidity shortfall, oracle disruption, insolvency, insurance fund depletion, security module issue, smart contract issue, Mistrade, Erroneous Transaction, settlement issue, liquidation issue, governance decision, regulatory action or order, or other extraordinary event, accounts with profitable or positive positions or balances at the time of the relevant loss allocation event, or accounts that have received settlement proceeds, profit, or other value in connection with the relevant instrument, market, or event, may be subject to clawback, socialised loss, delayed settlement, adjusted settlement, forced deleveraging, or other loss allocation processes.
4.2 These processes may affect profitable positions, accounts that do not themselves breach margin requirements, or users that did not cause the relevant shortfall, where this is required by the protocol design, governance decision, applicable risk framework, market integrity process, settlement process, liquidation process, or extreme market circumstances.
4.3 No user has any guaranteed right to be protected by the insurance fund, security module, liquidation process, market maker, liquidity provider, or other participant. The insurance fund, security module, and related risk mechanisms are operational features of the Derive Protocol and are subject to depletion, governance decisions, technical constraints, and other limitations. Their availability at any particular time is not guaranteed.
4.4 Margin parameters, liquidation thresholds, risk limits, collateral requirements, price bands, and other parameters that affect your margin and liquidation risk may be set or changed at the protocol level through smart contract mechanics, governance decisions, or DAO-approved processes, or at the Application level through risk controls, price bands, API parameters, and related operational settings.
Where a parameter operates at the protocol level, any change requires governance or smart contract action through the Derive Protocol and is not within Lyra Technologies Corp’s unilateral control. Where a parameter operates at the Application level, we may set or adjust it through available Application functionality.
Where a change to an Application-level parameter may materially increase your immediate liquidation risk or significantly affect your margin requirements, we will endeavour to provide notice in accordance with section 14.1.2 of the Terms of Use, except where a shorter period or immediate change is required for market integrity, risk management, oracle, settlement, or other urgent reasons.
Where a change to a protocol-level parameter requires governance or smart contract action, we will endeavour to communicate material changes through available channels as soon as reasonably practicable, but the timing and implementation of any such change depends on the applicable governance and smart contract processes and is not solely within our control.
You are responsible for monitoring parameter changes at both the Application and protocol level and their effect on your positions, margin, and account health at all times.
