# Liquidation Cascade Risk > Use when open interest is elevated, leverage is concentrated near key price levels, or market depth is thinning — to detect, avoid, and opportunistically trade liquidation cascade events on HyperLiquid perpetuals. - Skill: `enuno/liquidation-cascade-risk` (Agent Skill) - Install (CLI): `npx skillmds@latest add enuno/liquidation-cascade-risk` - Raw SKILL.md: https://api.skillmd.com/api/skills/enuno/liquidation-cascade-risk/raw - Safety review: pending (external: skill-scanner PASS, skillspector PASS) - Works with: Claude Code, Claude.ai, OpenAI Codex - Category: Coding & Dev Tools - Author: enuno (https://skillmd.com/u/enuno) - Updated: 2026-09-09 - Page: https://skillmd.com/skills/enuno/liquidation-cascade-risk --- # Liquidation Cascade Risk ## When This Skill Activates Apply this skill whenever **any** of the following pre-cascade signals are present on HyperLiquid perpetual markets: - Open interest (OI) has increased **> 15%** over the prior 24h while price is range-bound or declining - OI-weighted average leverage on the asset is estimated **> 10×** (infer from OI / market cap ratio when direct leverage data is unavailable) - Price approaches a **known liquidation cluster level** (derived from OI distribution or historical wicks) - Bid-side depth within **0.5%** of mid has dropped **> 30%** versus the prior 1h average (thin book = amplified cascade velocity) - Funding rate has been **> 0.05%/h for ≥ 6 consecutive hours** (extreme carry = crowded long leverage) - A large liquidation event (**> $5M notional** on any single asset) has already fired — first liquidation often triggers cascade - CVD (cumulative volume delta) diverging strongly negative vs. price (hidden sell pressure before a long-side cascade) --- ## Core Principle Liquidation cascades are **reflexive, self-reinforcing events**: forced long closures drive price down, which liquidates more longs, which drives price further down. On thin-book perpetual markets like HyperLiquid, a cascade can clear **3–8% of price in under 60 seconds** with near-zero mean-reversion in the first 30 seconds. > **Rule**: Never hold a leveraged long into a confirmed cascade. Size > aggressively to exit at the *first* liquidation signal, not after > confirmation. Being wrong costs slippage; being right saves the position. --- ## Signal Classification and Cascade Probability ### Pre-Cascade Regime Indicators | Signal | Threshold | Cascade Probability Uplift | |---|---|---| | OI growth (24h) | > 15% | +20% | | OI growth (24h) | > 30% | +40% | | Funding (1h) sustained | > 0.05% for 6h+ | +25% | | Book depth drop (bid, 0.5%) | > 30% vs 1h avg | +30% | | Price near OI cluster | within 0.3% | +35% | | First large liquidation fired | > $5M notional | +50% | | CVD divergence | strong negative | +20% | Probabilities are **additive uplift estimates**, not independent probabilities. When 3+ signals are simultaneously active, treat cascade risk as **HIGH** and apply the full defensive protocol below. ### Cascade Severity Classification | Severity | Expected Price Drop | Duration | Recovery Pattern | |---|---|---|---| | Minor | 1–2% | 1–5 min | V-shape, fast recovery | | Moderate | 2–5% | 5–20 min | Partial recovery, new lower range | | Major | 5–10% | 20–60 min | Dead-cat bounce, re-test lows | | Systemic | > 10% | Hours | Extended downtrend, OI reset | --- ## Step-by-Step Pre-Cascade Protocol ### 1. Fetch OI and Liquidation Data ``` GET /info → meta + assetCtxs → assetCtxs[i].openInterest (current OI in base asset) → assetCtxs[i].funding (current predicted 1h rate) → assetCtxs[i].markPrice (mark price for cluster proximity) GET /info → liquidations (via WebSocket: subscribe to l2Book + trades) → monitor for large single-fill liquidation events ``` Compute OI change: ``` oi_change_pct = (oi_now - oi_24h_ago) / oi_24h_ago * 100 ``` ### 2. Assess Book Depth Fragility ``` GET /info → l2Book(coin) → sum bid sizes within 0.5% below mid = bid_depth_near → compare to 1h rolling average = bid_depth_avg_1h fragility_score = max(0, 1 - (bid_depth_near / bid_depth_avg_1h)) # fragility_score > 0.30 = dangerously thin book ``` ### 3. Score Active Signals and Classify Risk ```python def cascade_risk_level(signals: dict) -> str: score = 0 if signals['oi_change_24h_pct'] > 30: score += 3 elif signals['oi_change_24h_pct'] > 15: score += 2 if signals['funding_elevated_hours'] >= 6: score += 2 if signals['book_fragility'] > 0.30: score += 3 if signals['near_oi_cluster']: score += 3 if signals['large_liq_fired']: score += 4 if signals['cvd_diverging']: score += 2 if score >= 8: return 'CRITICAL' # exit all longs immediately if score >= 5: return 'HIGH' # reduce longs 50–75% if score >= 3: return 'ELEVATED' # reduce longs 25–40% return 'NORMAL' ``` ### 4. Execute Defensive Action by Risk Level | Risk Level | Score | Immediate Action | |---|---|---| | NORMAL | 0–2 | No change; maintain standard position monitoring | | ELEVATED | 3–4 | Reduce long exposure 25–40%; widen stops | | HIGH | 5–7 | Reduce long exposure 50–75%; cancel resting longs | | CRITICAL | 8+ | Close **all** longs immediately via market order; pause new longs | > **CRITICAL override**: When `large_liq_fired` signal fires (+4 score), the > CRITICAL threshold can be hit with only one other signal active. Do not > wait for full scoring — execute exit the moment a confirmed large > liquidation event is observed AND any one other signal is active. --- ## During a Cascade — Live Event Protocol Once a cascade is confirmed (price dropping > 1% in < 2 min with rising liquidation volume): ### Do NOT - Add to long positions to "average down" — cascades have no floor until OI is cleared; the market will liquidate your averaging attempt too - Place resting limit bids in the cascade path — bids will be hit immediately, not providing price improvement but capturing falling knives - Use stop-loss orders inside the cascade — stop-limit orders may not fill; use **market orders** for exit during a cascade - Attempt to short the cascade if not already positioned — entry during a cascade is extremely high slippage; the best edge is pre-positioning ### Do - Execute all long exits via **market order** (not limit) — slippage cost is always lower than the cost of not exiting during a major cascade - Monitor the liquidation feed for **cascade exhaustion signals**: - Liquidation volume decelerating (fewer liquidations per 30s) - Bid depth beginning to rebuild in the l2Book - Funding rate dropping sharply (extreme shorts beginning to dominate) - CVD turning positive (buyers absorbing supply) - Log the cascade start price, trough price, and recovery level for the evolution curriculum agent's liquidation-cascade task family --- ## Post-Cascade Re-Entry Protocol Cascades create **re-entry opportunities** once OI has been flushed and liquidation pressure exhausts. The post-cascade long is one of the highest-probability setups in perpetual markets. ### Re-Entry Criteria (all must be met) 1. **OI has declined ≥ 15%** from pre-cascade peak (deleveraging confirmed) 2. **Funding has normalised** to < 0.02%/h (crowded longs cleared) 3. **Bid depth has recovered** to ≥ 80% of pre-cascade 1h average 4. **Price has stabilised** — no new lows for ≥ 5 consecutive 1m candles 5. **CVD is turning positive** — net buying pressure visible on tape ### Re-Entry Sizing Post-cascade re-entries use **reduced initial size** due to residual uncertainty about whether the cascade is fully exhausted: ``` re_entry_size = base_size * 0.5 # initial leg # Add second leg when: # price holds above entry for > 15 min AND # OI begins rising again (new longs building = recovery confirmed) re_entry_size_full = base_size * 1.0 ``` Stop-loss: place **below the cascade trough**, not below entry — the trough is the structural low; a breach invalidates the recovery thesis. --- ## Failure Modes to Avoid - **Treating every OI spike as a cascade warning**: OI can rise sustainably in genuine trend regimes. Require ≥ 2 signals before elevating risk level. - **Exiting too early on minor cascades**: Score < 5 with no large liq fired does not warrant full exit. Over-trading defensive exits erodes alpha. - **Re-entering before OI flush is confirmed**: Premature re-entry during a "dead-cat bounce" inside a larger cascade is the single most common post-cascade loss. OI *must* be declining before re-entry. - **Ignoring cross-asset contagion**: BTC cascade → ETH cascade within 1–3 minutes is the historical norm. Apply CRITICAL protocol to all correlated assets when BTC cascade fires, not just BTC. - **Using cascade as a routine short entry**: Cascades are violent; short entries mid-cascade have extreme slippage and risk sharp V-shape reversals. The short opportunity was in **pre-positioning**, not during the event. - **Forgetting the funding kill-switch interaction**: The `high-funding-carry-avoidance` skill's kill-switch (`funding > 0.15% AND drawdown > 1.5%`) should already have reduced exposure before a cascade fires. If it has not, treat any cascade signal as an immediate override regardless of score. --- ## Integration with Other Skills and Controls ### Skill Dependencies - **`high-funding-carry-avoidance`**: A prerequisite check. If funding carry avoidance has not already reduced long exposure in a high-funding regime, liquidation cascade risk is structurally higher. Run funding check first; cascade check is the second defensive layer. - **`kelly-position-sizing-perps`** (risk/): Post-cascade re-entry sizing must still pass through Kelly/risk-budget constraints. The 0.5× initial re-entry is a cascade-specific overlay on top of base sizing. ### Risk Engine Integration ```json { "event": "cascade_risk_assessment", "asset": "BTC", "timestamp_utc": "2026-04-07T22:30:00Z", "oi_change_24h_pct": 22.4, "funding_1h": 0.061, "funding_elevated_hours": 7, "book_fragility": 0.41, "near_oi_cluster": true, "large_liq_fired": false, "cvd_diverging": true, "cascade_score": 7, "risk_level": "HIGH", "action_taken": "reduced_long_60pct", "position_before_usd": 15000, "position_after_usd": 6000 } ``` Log this record to `logs/metaclaw/records/` on every cascade assessment that results in a position change so it enters the RL replay buffer. --- ## Quick Decision Tree ``` Is cascade_score >= 8 OR (large_liq_fired AND any other signal active)? ├── YES → CRITICAL: market-exit ALL longs immediately. Halt new longs. │ └── NO → Is cascade_score >= 5? ├── YES → HIGH: reduce longs 50–75%. Cancel resting long orders. │ └── NO → Is cascade_score >= 3? ├── YES → ELEVATED: reduce longs 25–40%. Widen stops. └── NO → NORMAL: monitor. No action required. Post-exit: monitor for cascade exhaustion. All 5 re-entry criteria met? ├── YES → Re-enter at 0.5× base size. Add second leg after 15m hold. └── NO → Remain flat. Do not chase recovery. ``` --- ## HyperLiquid-Specific Notes - **WebSocket liquidation feed**: Subscribe to `trades` channel and filter for `"liquidation": true` in the trade object. HyperLiquid does not have a dedicated liquidation stream; liquidation fills appear in the standard trades feed with a liquidation flag. - **Mark price vs. last price**: Liquidations trigger at **mark price** (oracle-weighted), not last trade price. During thin-book cascades, last price can lag mark price by 0.5–2%. Use `assetCtxs[i].markPrice` for liquidation cluster proximity calculations, not mid from the l2Book. - **Cross-margin cascade amplification**: HyperLiquid cross-margin accounts allow a cascade on one asset to liquidate positions on correlated assets if overall margin falls below maintenance. Monitor `marginSummary.totalRawUsd` and `marginSummary.totalMaintMargin` ratio; if ratio < 1.3, pre-emptively reduce all cross-margin longs regardless of per-asset cascade score. - **Vault LPs are cascade beneficiaries**: HyperLiquid vault LPs earn from liquidation fees and benefit from OI resets. This skill applies only to **directional perpetual positions**, not vault LP allocations. - **Order book reset after cascade**: HyperLiquid's order book fully refreshes after a cascade event. The first 30 seconds of l2Book data post-cascade is unreliable for depth assessment — wait 60 seconds before using book depth as a re-entry signal.