Non-Interactive Liquidations
Liquidation System
Non-Interactive Liquidations
Proving Insolvency Without Wallet Linking
In traditional perpetual futures protocols, liquidations are inherently address-linked and event-driven: a user's public position is monitored by bots or the protocol itself, and when a predefined threshold (e.g., maintenance margin ratio) is crossed, the position is forcibly closed. While this system works for transparency and automation, it creates a dangerous incentive structure on-chain — where trader vulnerability becomes alpha.
SnarkSide’s liquidation system is built from first principles to completely decouple insolvency from address exposure. Using zero-knowledge proofs, any third party can submit a non-interactive liquidation proof demonstrating that a vault has become insolvent — without knowing who owns it, without revealing its location in the Merkle tree, and without leaking the details of its position. This marks a paradigm shift: liquidation becomes epistemically minimal, incentive-neutral, and privacy-preserving.
Why Liquidations Must Be Anonymous
In account-based perp DEXs:
Anyone can monitor when a trader is nearing liquidation.
MEV bots can front-run liquidation to extract profit.
Adversarial actors may intentionally trigger liquidations by manipulating low-liquidity markets.
This leads to:
Manipulated wick events
Unnecessary volatility
Reduced protocol credibility for high-value users
Flight of liquidity from on-chain systems
SnarkSide’s liquidation design removes these problems by turning liquidation into a cryptographic process, not an observable event.
Liquidation as Proof, Not Trigger
At the core of the SnarkSide liquidation model is the Liquidation Proof Circuit — a SNARK that enforces the following:
A vault existed in the committed Merkle tree.
The position in that vault had a leverage level and mark price exposure.
The position’s margin and notional values implied a health ratio.
That health ratio dropped below the maintenance margin threshold.
The nullifier associated with the vault had not yet been used.
A new commitment is created (redistributing the residual margin to the liquidator and fee vaults).
No addresses. No public balances. No event tracing.
Circuit Outline
In high-level terms, the circuit checks:
assert(position_commitment ∈ MerkleRoot)
assert(mark_price > liquidation_threshold(entry_price, direction, leverage))
assert(nullifier not used)
assert(transition_to_liquidated_commitment is valid)The proof reveals nothing about the wallet that opened the position or even which index in the tree it belonged to.
Inputs:
vault_root
The root of the vault Merkle tree
nullifier
The nullifier to burn for the liquidated vault
new_commitment
The vault commitment reflecting liquidation outcome
mark_price_commitment
Commitment to oracle-sourced price at time of proof
Private Witness:
entry_price
User's original entry
direction
Long or short
leverage
Position leverage
margin_amount
Collateral posted
expiry_slot
Trade expiry or funding cutoff
vault_salt
Randomizer
owner_secret
Proof of ownership (not exposed)
All of this is kept private. Only the SNARK is posted, and its correctness is verified without data exposure.
Incentives for Third-Party Liquidators
To encourage timely and fair liquidation, SnarkSide embeds a settlement incentive structure:
A percentage of the residual margin (after penalty) is claimable by the submitter of a valid liquidation proof.
The proof must include a correct redistribution commitment, ensuring:
Protocol fees are enforced
Liquidator receives fair reward
Vault is permanently nullified and replaced
Importantly, this incentive does not require knowing the trader or observing the network. It is earned through computation, not observation.
Oracle Integration
To evaluate a position’s solvency without revealing it, the circuit uses a committed mark price, provided via:
Aggregated oracles (Pyth, Switchboard, Chainlink)
Timestamped commitment attested by relayer
Price hash included in the SNARK and verified via Merkle
This guarantees:
The liquidation used a fair market price
The proof binds to a specific moment
Replay is impossible
In the future, SnarkSide may support on-chain optimistic pricing challenges, enabling fully decentralized oracle-free liquidation paths.
Anti-Abuse Design
SnarkSide's liquidation system includes safeguards against false or malicious proofs:
All liquidation proofs must be valid SNARKs.
Nullifier double-use is enforced at the contract level.
Vault Merkle root is updated atomically with every batch.
Incorrect or stale proofs cannot be submitted against a non-existent or already-closed commitment.
Summary
SnarkSide transforms liquidation into a trustless, non-interactive cryptographic service, where:
Positions are liquidated without revealing owners.
Proofs verify insolvency without traceable state diffs.
Liquidators are rewarded for work, not for surveillance.
This system not only defends against MEV and adversarial liquidation — it also restores the economic neutrality of leverage itself. On SnarkSide, privacy is not just about protection. It is the precondition for market integrity.
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