Major crypto derivatives exchange BitMEX says that their Insurance Fund did exactly what it was supposed to during the market crash.
In their latest blog post, the exchange addressed questions from the traders related to the Insurance Fund, its role during the March 12 and 13 market turbulence, and why it wasn’t utilized during the crash. The Insurance Fund has grown gradually in the last 18 months, says BitMEX, standing at BTC 34,678 (USD 203 million) now. “It is important for the Fund to be large enough to absorb intraday shocks, to avoid Auto Deleveraging (ADL) on the platform,” they add.
“During these events, the Fund acted as the last line of defense, by attempting to prevent ADL,” writes BitMEX, 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.” And as such, it “completely prevented” ADL on March 12 and 13.
On the other hand, says the exchange, this fund is not used to cover BitMEX running costs or contribute to its profits, to demand payments from traders with negative account balances, or to influence markets, intentionally or otherwise.
A must read for traders who want to understand the mechanics of the Insurance Fund. https://t.co/uaglC8cfUT
— Arthur Hayes (@CryptoHayes) March 23, 2020
As previously reported by Cryptonews.com, BitMEX Co-founder and CEO, Arthur Hayes, said that the exchange experienced two DDoS (denial-of-service) attacks on February 13, the day the crypto market crashed. The exchange had stopped trading shortly, and people started speculating about what its role was in this market dive, and whether it exacerbated losses in the bitcoin (BTC) price.
The exchange explains that while the crach didn’t deplete the Fund, liquidity dropped “significantly.“ A second move would’ve stretched the fund to its limits, but it would “likely survive due to its size and the trader confidence it creates. No other fund in the crypto ecosystem has the size to survive such an event,” says BitMEX, adding that “In this scenario, it is likely that massive loss-recovery events will take place at all other major crypto derivatives platforms.”
Besides BitMEX supporters in the comments, there are also those who either don’t believe the explanation or say do not understand it. Others said that there’s very little new information shared in the post, while trader ‘lowstrife’ said they understand “why the insurance fund can’t protect against an event like this,” but wondered why it, “when the worst-case scenario almost happened, was barely used. Which raises questions of why it’s so large, and it’s overall efficacy.”