Position Rebalancing (Liquidation Brake)

Rebalancing Mechanism

Once a position is opened, the protocol continuously monitors its leverage ratio and automatically initiates rebalancing to maintain system stability within predefined safety thresholds.

When a position’s leverage exceeds the set limit, the protocol triggers a rebalance operation, which adjusts the leverage by redeeming a portion of bnbUSD—bringing the position back in line with the target ratio.

During this process:

• bnbUSD is first redeemed from the Stability Pool

• The underlying TOKEN is then swapped for USDT to help preserve systemic balance and reduce risk

Real-Time Monitoring

A decentralized network of external keepers continuously monitors both market dynamics and the leverage ratios of all active positions. When market movements push a position beyond its predefined safe leverage range, Sigma Money's automated rebalancing system is triggered to maintain systemic stability.

Leverage Adjustment

In the event that leverage exceeds safety thresholds—such as during a BNB price decline—Sigma Money automatically reduces leverage by burning a portion of the position’s bnbUSD debt. The corresponding collateral is partially liquidated into bnbUSD or USDT and deposited into the SIGMA Money Reserve for future redistribution.

This targeted reduction effectively lowers leverage while maintaining the user's exposure to the underlying asset—allowing the position to stay active without triggering full liquidation.

By automating this entire process, the protocol ensures seamless risk control without requiring user intervention. This design minimizes liquidation events and enhances the overall safety and reliability of leveraged position management in volatile environments.

Rebalancing Operation Example

CZ opens a position with 1 BNB when BNB trades at $600 with a maximum Loan-to-Value (LTV) ratio at 86%. The position will trigger a rebalancing action if the BNB price falls by 2.27% (i.e., to $586.36), as this causes his LTV ratio to reach 88% (see Risk parameters).

Position at the Opening

BNB Price	Position Size	bnbUSD Debt	LTV
$600	$600	$516	86.00%

The BNB price drops by 3% to $582, triggering a rebalancing of CZ’s position.

Position Before Rebalancing

BNB Price	Position Size	bnbUSD Debt	LTV
$582	$582	$516	88.66%

To bring the LTV back to 88%, bnbUSD must be burned from CZ’s debt. The required amount is calculated using the following formula:

An additional redeeming bounty, as defined in the Risk Parameters, is included in the total redeemed amount.

Rebalancing Process

• bnbUSD Burn: A total of $32 worth of bnbUSD is burned from the Stability Pool and deducted from CZ’s outstanding debt.

• Collateral Redemption: The corresponding amount of slisBNB collateral, along with the keeper bounty, is redeemed by the keeper executing the operation.

• Stability Pool Adjustment: An equivalent value in bnbUSD or USDT is returned to the SIGMA Money Reserve for redistribution and continued protocol stability.

Position After Rebalancing

BNB Price	Position size (USD)	bnbUSD Debt	LTV
$582	$550	$484	88%

After the rebalancing, CZ’s leverage is adjusted to prevent liquidation, and he maintains exposure to the market

Position After Market Recovery

If the market recovers back to $600:

BNB Price	Position size (USD)	bnbUSD Debt	LTV
$600	$567.01	$484	85.36%

Key Takeaways

• Seamless Rebalancing: The system automatically adjusts CZ’s position when the market moves unfavorably to maintain the target LTV.

• Protection Against Liquidation: The rebalancing process helps preserve CZ’s position in the market, preventing liquidation even during market downturns.

• Dynamic Leverage: CZ’s leverage and debt are dynamically adjusted based on the price movements of BNB to optimize his exposure and manage risk.