BitMEX explains the role of Insurance Fund in a mass liquidation event during which BTC/USD crashed 60%

Popular cryptocurrency derivatives trading platform BitMEX has clarified the role of its Insurance Fund in a lengthy blog post meant to defend it from criticism being received after the crypto market crash.

BitMEX explains the role of the Insurance Fund in cryptocurrency market incidents

The blog post was published to address questions related to the derivatives exchange’s Insurance Fund, which was criticized for not being used to help during a crypto market crash earlier this month that saw the price of BTC drop from $7,100 to a $4,000 low between March 12 and 13.

First of all, the BitMEX team decided to make things clear about the role and position of their Insurance Fund. According to reports from the group, the fund does not affect the platform operating costs or potential profits.

Meanwhile, BitMEX’s Insurance Fund grew to 34,670 BTC ($224 million). In the post, the exchange clarified the Insurance Fund acts as a “last line of defense” during highly volatile periods to prevent Auto Deleveraging (ADL), which is the automatic deleveraging of the positions of profitable traders (ranked by profit and leverage in that contract) against liquidated positions to prevent bankruptcy.

The Fund, per the exchange, assures its users that while there is the limited downside for losing traders – who end up being liquidated – there is no limit to the upside and profitable traders are likely to receive their gains.

BitMEX clarified the Fund’s purpose, pointing out:

“It does not cover BitMEX running costs or contribute to BitMEX profits. It does not demand payments from traders with negative account balances. And it is not used to influence markets, intentionally or otherwise.”

The blog post further claimed that “no other fund in the crypto ecosystem has the size to survive such an event,” noting that on other platforms it could lead to “massive loss-recovery events.”

The Insurance Fund guarantees traders receive profits, even if market volatility spikes, without requesting payment from traders with negative account balances.

Carnage failed to deplete BitMEX Insurance fund

According to rumors, BitMEX and other crypto derivatives environments were completely out of funds after huge liquidations (up to $2.25B across multiple platforms). Yet, the official statement claims that the use of insurance funds was insignificant.


Source: BitMEX

During the first two weeks of March 2020, between 35,000 XBT and 36,000 XBT (equivalent to Bitcoin (BTC) in derivatives trading) was stored in the insurance fund. When the Bitcoin (BTC) price dropped, this number declined by only 10% but recovered quickly. At printing time, the volume of the insurance fund exceeds 35, 000 XBT again.

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