Insurance Fund on DeeBit Exchange
DeeBit Exchange has established an Insurance Fund to protect the interests of traders and the platform, preventing excessive losses caused by contract liquidations. The Insurance Fund ensures the smooth settlement of positions during forced liquidation, avoiding the activation of the Auto-Deleveraging (ADL) mechanism when position losses exceed the margin.
Source and Operation Mechanism of the Insurance Fund
During forced liquidation, the system settles positions at the bankruptcy price. When the market price is worse than the bankruptcy price, the margin of the existing position is insufficient to cover the liquidation requirements. At this point, the Insurance Fund takes over the user's position and covers the loss exceeding the user's current margin.
Example:
- User A's long position triggers liquidation with a bankruptcy price of 1,000 USDT. The latest market price is 980 USDT, and the actual execution price is 1,000 USDT. Thanks to the Insurance Fund, the user can close the position at 1,000 USDT without bearing excess losses.
- User B's short position triggers liquidation with a bankruptcy price of 1,000 USDT. The latest market price is 1,050 USDT, and the actual execution price is 1,000 USDT. Thanks to the Insurance Fund, the user can close the position at 1,000 USDT without bearing excess losses.
User | Position Direction | Bankruptcy Price (USDT) | Latest Price (USDT) | Execution Price (USDT) | Insurance Fund Performance |
User A | Long | 1,000 | 980 | 1,000 | Covers excess losses |
User B | Short | 1,000 | 1,050 | 1,000 | Covers excess losses |
Role of the Insurance Fund in Forced Liquidation
The Insurance Fund is activated during the forced liquidation process. When market volatility is severe and positions cannot be liquidated at reasonable prices, causing the price to exceed the bankruptcy price, the Insurance Fund immediately steps in to cover the losses, ensuring traders do not bear additional losses beyond their margin. Additionally, if the execution price during liquidation is better than the bankruptcy price, the surplus is injected into the Insurance Fund.
How to Check the Insurance Fund Balance
You can view the Insurance Fund balance at any time on the DeeBit Exchange futures page. This page displays the current Insurance Fund balance for all contracts, with transparent and publicly updated data.
Depletion of the Insurance Fund
If the Insurance Fund is unable to cover all losses due to severe market volatility, the Auto-Deleveraging (ADL) mechanism will be activated. Profits from other traders' positions will be used to cover the shortfall.
Example:
The current Insurance Fund balance is 10,000 USDT. However, due to extreme market volatility, multiple users experience liquidation losses totaling 11,000 USDT. Since the Insurance Fund is insufficient to cover all losses, the system triggers Auto-Deleveraging.
Important Notes
- The demand for the Insurance Fund varies depending on the risk level of each contract pair. The Insurance Fund balance is allocated independently for each contract pair, and the balances for different trading pairs are aggregated and displayed.
The final interpretation of this product belongs to DeeBit Exchange.
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