Bybit uses the insurance fund to decrease the possibility of Auto-Deleveraging (ADL). In the event of liquidation, if the liquidated order is closed at a price worse than the bankruptcy price, Bybit will use the balance of the insurance fund to cover the gap. If the insurance fund is insufficient, ADL will be triggered.
Mechanism of the Insurance Fund
During liquidation, the balance of the insurance fund will increase/decrease depends on the price difference between the final executed price and its bankruptcy price of that liquidated position.
- When liquidations can be executed in the market at a price better than the bankruptcy price, the remaining margin will be added to the insurance fund.
- Vice versa, when the final executed price is worse than the bankruptcy price, the contract losses will be covered by the insurance fund.
A trader has a long position on BTCUSD with the liquidation price at 7,000 USD and Bankruptcy price at 6,950 USD. Once Mark Price hits 7,000 USD, this position will be liquidated.
If this position can be liquidated at any price higher than 6,950 USD, for example, USD 6980, the remaining margin in BTC will be contributed to the insurance fund.
Reciprocally, if the final execution price is lower than 6,950 USD, for example, 6,930 USD, the insurance fund will be used to cover the contract losses.
The balance of the Insurance Fund
Traders can always refer to the insurance fund on our official website. It will display the current balance of the insurance fund as well as recording all inflow & outflow transactions. Anyone can view it at any time, ensuring a very transparent system.
Depleted insurance fund
If the insurance fund is insufficient to cover the gap between the final execution price and bankruptcy price, the contract losses will be taken over by the ADL system and absorbed by the traders on the platform.
For example, the insurance fund has 10 BTC but the single order contract loss amount to 12BTC. Since the insurance fund cannot fully cover the contract losses (10 BTC is less than 12 BTC), the entire contract loss will be taken over by the ADL mechanism.
USDT contracts' common insurance fund
Note: Specific to USDT contracts, despite all trading pairs sharing the same insurance pool, please be informed that only BTCUSDT contracts have access to 100% of the insurance funds. On the other hand, other altcoins USDT contracts may only utilize up to 20% of the insurance fund per 24 hours. For more info, please visit the FAQ here.