Every Market Crash Liquidates Long Positions Worth Billions. Those Losses Are Our Gains.

Down With SIMPs (Suckers Inventing Mediocre Ponzis).

This isn’t another meme token. No vague promises. No absurd tokenomics. No rocket emojis. We aren’t building a useless cryptocurrency crammed full of pointless references to Shiba Inus or Tesla or SpaceX. We aren’t running around telling suckers that we’re saving the Earth by donating 0.05% of all transaction fees to some tree-hugging hippies. We aren’t pulling pitiful publicity stunts like sending tokens to Vitalik. We don’t rely on recruiting ever-more users to create value for our holders.

We have a proven business plan that is already profitable: With our funds combined, we short excessively-hyped coins on Binance, forcing over-leveraged traders into liquidation. Each liquidation pushes prices down further, in turn causing more liquidations in a cascade that results in an avalanche of profits for our token-holders.

SPACER

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I. ABSTRACT:

“Liquidate” is a curious verb.

In once sense, liquidation describes the forced closure of a financial position. Consider a Binance trader: he might choose to open a leveraged long position in Futures, effectively borrowing money to purchase more units of a cryptocurrency than he could otherwise afford. These tokens are in fact purchased on his behalf by Binance. If the tokens rise in price, he will reap profits far in excess of those he would earn from conventional (i.e., unleveraged) trading. However, if the tokens fall in price to the point where his financial losses are poised to exceed the value of his collateral, Binance will close his position at a loss – typically, at a total loss. We call this “liquidation” because the tokens representing his position are sold in exchange for some liquid asset, typically a fiat currency or a stablecoin representing the same.

In another sense, when the core of the Chernobyl Nuclear Power Plant detonated, the “Liquidators” (Ликвидаторы) were the men who labored in perilous conditions and gave their lives to contain the catastrophic radiation leaks consequent to the blast.

We see one obvious parallel between these uses of the word “liquidate”: in both cases, liquidation is a sort of “cleaning up”, and a way of resolving a dangerous situation. In the financial case, liquidation involves an exchange protecting itself from financial losses by eliminating the risk of “holding a customer’s bags”, i.e., the risk of absorbing the losses of a customer’s unprofitable leveraged Futures position. In the radiological case, liquidation involves a nation protecting its civilians from irradiation by eliminating the risk of further isotope leaks.

There exists a second parallel – a deeper, more meaningful parallel. The explosion at Chernobyl was, at its core (both metaphorically and literally), caused by a chain reaction. This reaction started small: a single neutron collided with an atom of Uranium-235, releasing energy and splitting the destabilized nucleus into fission products, among which were three additional neutrons. Each of these three neutrons split another atom of U-235, and one neutron became three, then nine, then twenty-seven, and so-on. The core had reached criticality, and the rest, of course, is history. Binance, like Chernobyl, is susceptible to chain reactions. Just as a nuclear meltdown can begin with a single neutron, so can a market meltdown begin with a single liquidation: as an insolvent trader is liquidated, Binance must sell off his cryptocurrency holdings before they drop in value further. However, this sell-off itself decreases the price of the cryptocurrency in question, and this price movement can force other traders with leveraged long positions into liquidation. Further liquidations cause additional selling by Binance, which causes further price drops, which in turn cause ever-more liquidations. This process can result in billions of dollars in liquidations, as occurred on April 21st, 2021 (over $5B liquidated) and on May 17th, 2021 (over $2B liquidated).

Money lost in liquidations disappears from the accounts of reckless Futures traders, but it does not disappear in an absolute sense; rather, it accrues to market-makers, holders of short positions, and to an exchange’s “insurance fund”. Money on an exchange, like mass-energy in an atomic nucleus, is conserved. One man’s short position is another man’s long position; one man’s loss is another man’s gain.

Liquidation cascades are hazardous, but just as Man may someday harness the power of atomic chain reactions to conquer the stars, so we at Liquidator.Finance harness the power of liquidation “chain reactions” to extract value from cryptocurrency exchanges and their customers. If a particular trading pair has large amounts of positive leverage (i.e., the dollar-values and leverage factors of long positions are large relative to total liquidity), it is “fissile”: Just like highly-enriched uranium, it is unstable and can be provoked into undergoing a violent chain reaction.

When Liquidator.Finance identifies such currency pairs, we use a portion of the liquidity of our token as collateral to open massive short Futures positions, causing Binance to sell tokens on our behalf, thereby increasing effective supply and dropping prices. As prices drop, traders with long positions are liquidated en masse, each liquidation triggering further price drops and ever-more liquidations, until all or nearly all long positions have been liquidated. The value of these liquidations – potentially in the millions of dollars – is transferred to our short position. We then close the shorts and use the profits both to add liquidity to the Liquidator token (increasing price stability) and to purchase our own tokens at market value (boosting prices). As the value of the Liquidator token and its liquidity pools grows, we take on ever-more-ambitious projects.

Here, we speak primarily of long-position Futures liquidations. However, short positions can also be liquidated. This is rarer, given that most Binance users are broadly bullish on cryptocurrencies (if they weren’t broadly bullish, they likely wouldn’t be on Binance); hence long positions tend to be dominant over shorts for most asset pairs at most times, and squeezing long positions is often easier and more profitable than squeezing short positions. Regardless, the fact that any leveraged position can be liquidated for fun & profit allows Liquidator.Finance to generate revenue for token-holders no matter the market conditions.

The largest cryptocurrency whales use the same strategy we employ, forcing smaller traders into liquidation, consuming their margin accounts like so many krill filtered from the twenty-thousand-league depths of the Seven Seas. The average trader stands little chance against these whales on his own. Individually, we may be minnows, but through Liquidator.Finance, it is we who become the whale.

You wake up in the morning, reach for your phone, and see the headline:

“Crypto Markets Crash In Worst Sell-Off On Record – $20 Billion In Futures Liquidated In Less Than An Hour”

Will you cry into your morning coffee? Or, will you smile, knowing that you’re on the other side of these liquidations, and that these losses are your gains?

II. SYMBOLISM:

The Liquidator.Finance project includes Atomic Age symbolism from the USSR in honor of the sacrifices made by the Chernobyl liquidators. As the Liquidators served the Soviet Union, so we serve the purchasers of our tokens.

III. THE ECONOMICS OF FUTURES MARKETS

Futures are a subset of financial options, and to understand them, we begin with a treatment of options more generally.

An options contract represents the right to buy or sell some financial asset or commodity in the future at a pre-arranged price. This price, known as the strike price, is agreed upon at the time the contract is bought. The moment an options contract is bought (by a trader) is also the moment when it is sold (by another trader, market-maker, exchange, or other counterparty). Critically, the strike price is intrinsic to the contract and will not fluctuate with market conditions, having the potential to be greater (or less) than the free-market price of the underlying asset at any given time. It is the ability to buy (or sell) units of an underlying asset at a price other than market price that gives options their potential financial value.

An enormous variety of options are available, and this variety is not exclusively due to the range of underlying assets referenced. Even for a single asset (such as Bitcoin, or platinum, or shares of AMC), a wide range of contracts exist, defined in part by the following characteristics:

1. Polarity (a right-to-buy or “long” contract versus a right-to-sell or “short” contract);

2. Strike Price (the price at which one may sell or buy);

3. Expiration (options may expire at any pre-defined time after they are purchased, or alternatively, they may be “perpetual”, i.e. non-expiring, which is equivalent to having an expiration date infinitely far in the future);

4. Exercise Rights (certain contracts may be exercised at any time after purchase, while others may be exercised only at or close to their expiration dates – the former are often called “European-style” and the latter “American-style”, though in reality both types are widely available in all markets);

5. Obligation to Exercise (conventionally, exercising an options contract is optional (hence the term “option”); in some cases, however, a purchaser of a contract is financially obligated to exercise it, and this obligation is secured by collateral in order to force exercise even if at a loss);

6. Counterparty (in some cases, an exchange is merely a market-marker and doesn’t directly sell options, rather allowing its own users to mint and secure and sell the contracts bought by others; in some cases, an exchange is the counterparty for some or all contracts).

This whitepaper is not a primer on financial instruments generally. We will not be presenting a comprehensive review of every nuance of every iteration of every options contract available in every nation and in every epoch since the 17th century Dutch Golden Age. Rather, we will focus on futures contracts offered by Binance, which are typical of futures contracts in the cryptocurrency space. Importantly, cryptocurrency futures behave differently from “normal” stock market options in several respects. RobinHood and Binance may have significant overlap in terms of user base, but the financial instruments they offer are dissimilar in critical aspects. Binance’s futures contracts – which are typical of cryptocurrency futures overall – have the following characteristics:

1. The strike price is equal to the prevailing market price (also called the “spot price”) of the asset in question at the instant a futures counteract is purchased. For example, if the price of BTC is $69,420 at the moment a future is opened, then this will be the strike price for that future – regardless of whether it is long or short. The situation becomes more complicated in that opening futures contracts (and closing them, for that matter) itself influences the market price of an asset if the value of the futures is sufficiently large relative to liquidity in the spot market. Large orders may therefore be filled at a range of prices, and the contract may be treated as having a strike price at the share-weighted average price of purchased contracts. The net result is that large long futures contracts, when opened, will tend to have strike prices slightly above the market price before the futures were opened. Large short futures contracts, in turn, will have strike prices slightly below the pre-opening market price.

2. Cryptocurrency futures are perpetual; they do not expire.

3. In order to keep futures prices close to the actual underlying price (spot price; market price) of an asset, users holding futures contracts in the “prevailing” direction (that is, in the direction corresponding to the majority of futures) are charged periodic fees, which are paid to users holding contracts in the opposite direction. For example, if the majority (by value) of Ethereum futures are long, then users holding long futures will be periodically charged a percentage of the notional value of their positions, with this money paid to users holding short positions, who will receive money proportionate to the notional value of their own shorts. Fees are charged from (or paid to) the margin balances of the traders in question. The fact that fees are based on notional value (and not on collateral value) means that, all else equal, higher leverage against a fixed collateral will result in higher fees deducted or received. For example, if a user holds short Doge positions and the majority of Doge futures are long, and this short-position holder increases his leverage by a factor of ten, the fees he receives will also be multiplied by a factor of ten.

4. In every case, the counterparties of cryptocurrency futures are exchanges (i.e., all cryptocurrency futures contracts available on Binance are sold by Binance itself, not between users).

5. Cryptocurrency futures may be “exercised” (closed) at any time.

6. Cryptocurrency futures must be closed at some point. Any trader opening a Futures contract is obligated to close that contract, and will not be permitted to withdraw his collateral until all contracts secured by that collateral have been closed.

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IV. LIQUIDATION IN FUTURES MARKETS

V. THE LIQUIDATOR STRATEGY

VI. VOTING

VII. TOKENOMICS

IIX. SOLIDITY CONTRACT

IX. CONCLUSION

III. THE NATURE OF LIQ

The Liquidator.Finance project includes Atomic Age symbolism from the USSR in honor of the sacrifices made by the Chernobyl liquidators. As the Liquidators served the Soviet Union, so we serve the purchasers of our tokens.