Instructions of insurance fund & Auto-Deleveraging | ADL |
Q : Hello, What's the topic today ?
A : Today's topic is Instructions of insurance fund and Auto-Deleveraging (ADL)
Q : Can you tell me about insurance fund first?
A : The insurance fund is a backup fund Gate.io set up to prevent the loss in the transaction. The insurance funding is mainly used to ensure the completion of liquidation. When the position loss is higher than the margin, the balance of insurance funding will be used to cover the gap.
The insurance funding comes from the surplus funds of contract liquidation. In the event of liquidation, if the average trading price is higher than the bankruptcy price, then the left balance ( the proportion with less loss) will be added to the insurance fund.
When the mark price surpassed the bankruptcy price while the liquidation order is not digested by the market, the insurance fund will be used for it.
As mentioned above, during liquidation, the balance of the Insurance Fund will increase/decrease depends on the price difference between the final Liquidation Price and the Bankruptcy Price of that liquidated position.
For example,
User A's long position is liquidated with a bankruptcy price of 10,000USDT and an actual transaction price of 10,100USDT. The actual transaction price is 100USDT higher than the bankruptcy price, that the 100USDT will be added to the insurance fund. User A will lose all balance of the insurance fund.
User B's short position is liquidated with a bankruptcy price of 10,000USDT and an actual transaction price of 10,050USDT. The actual transaction price is 50USDT higher than the bankruptcy price, that the insurance fund will be used to digest the liquidation order, and user B does not have to pay the extra 50USDT.
Traders can always refer to the Insurance Fund on our official website (need to distinguish the tokens for settlement).
The following picture is an example of the Insurance Fund balance :
When the Insurance Fund is insufficient, the auto-deleveraging will be triggered to digest the liquidation.
For example:
The current balance of the insurance fund is 1000USDT. The volatile market conditions have caused liquidation for a good amount of users, and a balance of 11,000USDT is needed. The insurance fund is insufficient to digest the liquidation, that the auto-deleveraging will be triggered.
Note:Since the risks and the requirement of each trading pair is different, that the summary insurance fund balance is displayed while each insurance fund is allocated separately.
Q: Thanks, How about ADL?
A : ADL or Auto-Deleveraging.
In the event of liquidation, if the insurance funding is not sufficient for the liquidation order, the auto-deleveraging system will be enabled. The ADL system will automatically deleverage an opposing position from a selected trader with the highest profit in order to eat up the pending liquidation order.
ADL Mark:
(The indicator light shows your position at the automatic liquidation queue. If all lights are on, your position is likely to be reduced in the event of liquidation. )
Q : Anything users need to be note ?
A : Yes, just only a few points.
1)User with more lights up on the indicator and higher ranking is more likely to deleverage.
2)Profit ranking refers to only the opening price, instead of the leverage and position.
3)If a user experienced ADL, all pending orders will be canceled.
4)To avoid ADL, users can close a position and then open another one.
For example:
A user opens a long contract position with 10,000BTC-USDT on 50x leverage, and the liquidation price is 9,000USDT. Assuming that the bankruptcy price is 8,500USDT, when the market volatility affects the mark price, which has triggered the liquidation price and caused the liquidation of the position, then place the order at the bankruptcy price, that place the order at 8,500USDT.
If it's unable to place the order at the bankruptcy price, which is 8,500USDT, and the insurance fund is insufficient to absorb the loss, then the ADL system will automatically deleverage.
With the assumption that there are 5 opposing short positions with profits in the current trading pair:
User A, 100 short positions, profit ranking at top 10%, 5 lights on the indicator;
User B, 200 short positions, profit ranking at top 30%, 4 lights on the indicator;
User C, 50 short positions, profit ranking at top 50%, 3 lights on the indicator;
User D, 150 short positions, profit ranking at top 80%, 2 lights on the indicator;
User E, 400 short positions, profit ranking at top 100%, 1 lights on the indicator;
If there are 350 positions facing liquidation, then Buser A, B, C will be selected, that the traders with the highest rankings in the system is prioritized and selected to deleverage first and to fill all contract at the bankruptcy price.
A : That's all for today.
