There is no liquidation process within the system because it’s the position price that is volatile and generate profit and loss. The trader buys the position and the max loss will be the price of it.
Let’s say, the long position price the trader buys is $1000, which is $8000 (Entry price) - $7000 (Floor Price). And if the underlying asset’s price falls below $7000, the position price will still be 0, never negative. Thus, the loss will never be higher than margin (position price when entering).
With the Cap and Floor price in the contract, traders can leverage with max loss and gain.
If the price of underlying asset falls below floor price, the position price will still be calculated with floor price.