What is Bybit’s Insurance Fund?
Bybit is a peer-to-peer digital currency derivatives trading platform. Unlike other trading platforms, Bybit does not engage in any trading activities itself. As such, it is crucial to implement measures to protect the interests of both traders and the platform, as well as to prevent contract losses for either party.
In the event of a forced liquidation, Bybit utilizes its insurance funds to mitigate the risk of automatic liquidation. If the forced liquidation cannot be executed at a price higher than the bankruptcy price, the insurance fund comes into play to offset the loss of the position, thereby preventing the Auto-Deleveraging (ADL) mechanism from being triggered.
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Mechanism of Bybit’s Insurance Fund
During liquidation, the balance of the insurance fund will either increase or decrease, contingent upon the price difference between the final execution price of the relevant liquidation position and the bankruptcy price.
When a position can be liquidated in the market at a price superior to the bankruptcy price, the remaining margin is added to the insurance fund.
Conversely, when the final execution price of the position is lower than the bankruptcy price, the contract loss is covered by the insurance fund.
Consider this example: traders hold long positions in BTCUSD, with a forced liquidation price of 7,000 USD, and a bankruptcy price of 6,950 USD. When the marked price hits 7,000 USD, the forced liquidation of the position is triggered.
If the position can be closed at a price above 6,950 USD, say 6,980 USD, the surplus margin is transferred to the insurance fund.
However, if the liquidation’s execution price is below 6,950 USD, for instance, 6,930 USD, the insurance fund is used to cover the liquidation loss.
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Insurance Fund Balance
Traders can check the “Insurance Fund” page on Bybit’s Official Website at any time. This page displays the current balance of the insurance fund as well as the complete record of all fund transactions. This mechanism is transparent and open, enabling anyone to review the balance and records of the insurance fund at any time.
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Depletion of Insurance Funds
If the insurance fund is insufficient to cover the difference between the final execution price and the bankruptcy price during a liquidation, the contract loss is assumed by the Auto-Deleveraging (ADL) system and borne by the platform’s users.
To illustrate, if the insurance fund holds 10 BTC but a single contract position incurs a loss of 12 BTC, the insurance fund would not be able to cover the total contract loss (as 10 BTC is less than 12 BTC). In this scenario, the Auto-Deleveraging (ADL) system would assume the entire contract loss.
USDT Contract Shared Insurance Fund
Please note that for USDT contracts, although all trading pairs share the same insurance fund pool, only BTCUSDT contracts are able to utilize 100% of the insurance fund. Contracts in other currencies can only make use of up to 20% of the insurance fund pool every 24 hours.
Please check Bybit official website or contact the customer support with regard to the latest information and more accurate details.
Bybit official website is here.
Please click "Introduction of Bybit", if you want to know the details and the company information of Bybit.
Comment by Hans
April 24, 2024
as I am trading here various assets, for me it's the most important feature. i mean, flexibility in tradable markets. i alternate trading styles, meaning that sometimes I trad...