The insurance fund is used by BitUBU to resist the risk of massive liquidation，mainly composed of the fund provided by BitUBU and the liquidation surplus from the liquidation orders.
The insurance funds used for different business lines, including margin trading, futures, perpetual swap, and options, are independent of each other. Even within the same business line, the insurance funds for the contracts with different underlyings and different currencies are also separated. The specific rules are as follows:
Insurance fund rules
Different currencies are provided with different insurance fund pools. Each pair for margin trading has two insurance fund pools, one is for the quote currency, while the other is for the trading currency. In other words, the insurance fund pool for each currency in margin trading includes all the pairs that with “this” currency as the quote currency or trading currency.
when the three margin pairs, BTC/USDT, ETH/BTC, and ETH/USDT, are being liquidated:
The insurance funds for coin margined futures and USDT margined futures are independent of each other. The insurance fund for contracts with the same underlying but with different expiry dates are calculated together.
For coin margined futures, contracts with different underlyings are provided with the insurance funds in the corresponding currencies.
For USDT margined futures, the insurance fund currency for all the contracts is USDT, but the pools are independent of each other.
The insurance fund pools for coin margined perpetual contracts and USDT margined perpetual contracts are independent of each other.
For coin margined perpetual contracts, contracts with different underlyings are provided with the insurance funds in the corresponding currencies.
For USDT margined perpetual contracts, the insurance fund currency for all the contracts is USDT, but the pools are independent of each other.
Options with different underlyings have insurance fund pools with the corresponding currencies. The insurance fund for all the options contracts with the same underlying will be calculated together, regardless of the expiry date, strike price, and type of contracts.
Every day at 8:00 AM (UTC), the platform will cover all losses, caused by partial liquidation or liquidation in the market from 8:00 AM (UTC) yesterday to 8:00 AM (UTC) today, with the insurance fund, and record it as bankruptcy loss. Every day at 8:00 AM (UTC), the platform will transfer all surpluses, caused by partial liquidation or liquidation in the market from 8:00 AM (UTC) yesterday to 8:00 AM (UTC) today, into the insurance fund, and record it as liquidation balance deposit.
Auto-Deleveraging (ADL) rules
Autoーdeleveraging, abbreviated as ADL, refers to a mechanism for liquidation of counterparty positions to control the platform's overall risk when extreme market conditions or force majeure lead to insufficient insurance fund or rapid decline of the insurance fund. At present, the rapid decline means that the insurance fund has dropped by 30% from the peak within 8 hours, and the platform may adjust it according to market conditions in the future. After ADL is triggered, the platform will no longer use the method of placing orders on the market and waiting for a suitable price to liquidate or partially liquidate user's positions, but directly find the counterparty account with the highest ranking and trade with the mark price at the time. After the transaction is completed, the counterparty position will be closed. The profits from the position will be added to the account balance. When the mechanism is adopted, the clawback will no longer be triggered.
ADL's counterparty ranking is determined by the following rules, including account risk or position risk, and the return rate of the contract position:
Marin profit calculation
Counterparty ranking rule
Based on margin profit, from the largest to the smallest.
The rate of return on loss-making positions is negative, and profitable positions are ranked in front of the loss-making positions.
Portfolio margin cross
According to the above rules, the higher the return rate and the lower the position margin ratio, the more likely the account to be used as ADL counterparties, facing the risk of automatically deleveraging. Users can see their own ADL risk level in real-time through the signal lights on the page. The signal light has 5 grids. When all 5 grids are on, it means that the counterparty ranking of this position is the highest, and the risk of automatically deleveraging is also the highest; when only 1 grid is on, it means that the counterparty ranking of the position is the lowst and the risk of automatically deleveraging is also the lowest.