Liquidation fees serve as a major revenue source for perp CEXes. However, most perp DEXes pass this income onto third parties.
Hubble Exchange stands apart by fully capturing liquidation fees. How?
What are liquidation fees?
When a user's account dips below the maintenance margin, their positions need closure to prevent bad debt. In CEXes, the exchange handles this. In DEXes, a third-party liquidator steps in, seizing the position and collateral, repaying the debt
In both cases the liquidator, be it a third party or the CEX itself, takes a fee from the liquidated trader as compensation for the service provided.
Why don’t DEXes capture these fees? The EVM and similar VMs require someone to manually trigger transactions. A third party, typically an off-chain bot, monitors user margins and liquidates those below the threshold.
Decentralizing liquidations and protecting the protocol against bad debt necessitates these third parties, who receive most liquidation fees as incentive.
So how does Hubble Exchange, being a DEX, manage to capture liquidation fees?
Hubble Exchange has innovatively tweaked the EVM to give app-specific functions to validators. As a block is produced, validators monitor user maintenance margins and carry out liquidations. This method ensures a decentralized, resilient, and swift liquidation engine.
The benefit? The protocol doesn't need to incentivize third parties and can accrue all the fees. It's a mechanism that provides both a more efficient and robust liquidation engine, and a very significant increase of protocol revenue.
