Instead of unwinding liquidated positions directly by Flipster, agents called Backstop Liquidity Providers (BLPs) are given incentives to manage liquidated positions. The presence of Backstop Liquidity Providers helps ensure the resilience and stability of financial markets by safeguarding against severe disruptions and promoting orderly trading.
The process after the occurrence of liquidation is as follows:
BLPs take over liquidated positions
If liquidation is triggered, all open orders are immediately canceled and the liquidation engine will take over the user’s entire position. Those positions are closed against BLPs at the bankruptcy price in addition to half of the Maintenance Margin (MM/2) as an incentive.
The insurance fund subsidises an incentive to BLPs
If the remaining margin is larger than half of the Maintenance Margin (MM/2), the difference is accumulated into the insurance fund.
On the contrary, if the remaining margin is insufficient to pay the incentive to the BLPs, the insurance fund will be used to cover it (i.e., the insurance fund pays Maintenance Margin / 2 - Remaining Margin).
If the insurance fund cannot cover an incentive to BLPs, Flipster will instead trigger an Auto Deleveraging Liquidation event, which automatically deleverages opposing trader positions by profit and leverage priority.
Risk Warning:
Trading in cryptocurrency involves risk and potential losses. Before trading, please make your investment decisions cautiously by considering your investment objectives, experience, and risk tolerance. You are solely responsible for your investment decisions, and Flipster is not liable for any losses you may incur. Derivatives trading, in particular, is subject to high market risk and price volatility. Please obtain independent advice where appropriate. This information should not be construed as financial or investment advice.