Futures Insurance Funds are safety nets that limit the impact of counterparty liquidations. This protects traders from adverse losses resulting from bankrupt positions and helps to ensure that the profits of winning positions are paid out to winning traders in full.
Binance maintains several Futures Insurance Funds and the assets of each Futures Insurance Fund may be held in one or more wallets. The assets of each Futures Insurance Fund are available to cover counterparty losses arising from different categories of futures positions.
How do Futures Insurance Funds work?
A trader’s position will be liquidated if the collateral made available by the trader to maintain the position is less than the margin required to maintain the position. A position will be considered bankrupt if the balance of the assets made available by the trader for that position is less than 0 following liquidation, or if the position cannot be liquidated (“Bankrupt Position”).
To the extent possible, the Futures Insurance Funds will take over Bankrupt Positions. Losses arising from Bankrupt Positions will be funded by the Futures Insurance Funds while profits (if any) arising from Bankrupt Positions will be retained by the Futures Insurance Fund.
How is the minimum size of the Futures Insurance Funds determined?
The required minimum size of each Futures Insurance Fund is calibrated to cover the losses arising from Bankrupt Positions (for the category of futures supported by the Insurance Fund). The approach used to determine the required minimum size is similar to methods adopted in traditional finance futures markets and expected by regulators of such futures markets. This approach is based on a 99.9% confidence interval and historical stressed scenarios reflecting extreme but plausible market conditions. Note that the 99.9% confidence interval is not related to the occurrence of Auto-Deleveraging and does not mean that Auto-Deleveraging will be, or is expected to be, avoided in 99.9% of liquidation scenarios. Please refer to “What is ADL and How Does It Work?” for more information about Auto-Deleveraging and how it works.
The calibration of the required minimum size of each Futures Insurance Fund will be reviewed by Binance on a quarterly basis and at times when Binance considers it appropriate in its sole discretion.
How are Futures Insurance Funds funded and maintained?
When a position is liquidated, a portion of the assets that have been made available to maintain the position will be deducted and paid to Binance as a Liquidation Clearance Fee, unless the position is a Bankrupt Position following liquidation. All or part of the Liquidation Clearance Fees paid by traders with respect to non-bankrupt positions subject to liquidation, may be allocated to the Futures Insurance Funds when Binance considers it necessary, to ensure that the Futures Insurance Funds do not fall below the required minimum size.
In addition, when the Futures Insurance Fund takes over a Bankrupt Positions, profit (if any) arising from the Bankrupt Position will be retained by the Futures Insurance Fund.
The size of each Futures Insurance Fund will be monitored frequently. If the size of any Futures Insurance Fund is less than the required minimum, Binance will contribute additional assets to the Futures Insurance Fund. To the extent that Binance considers necessary or appropriate, assets may be rebalanced between the various Futures Insurance Funds to ensure that each Futures Insurance Fund is at least equal to the required minimum.
If the size of the Futures Insurance Funds exceeds the required minimum determined in a periodic review, any funds in excess of the required minimum may be deployed by Binance for other purposes as it considers appropriate in its sole discretion.
You can access the Futures Insurance Funds balance (USDT or USDC) of all futures contracts by clicking [Data] - [Futures Data] - [Insurance Fund History] on the Binance Futures trading interface.
What happens if the Futures Insurance Fund is insufficient to cover Bankrupt Position losses?
If the losses arising from Bankrupt Positions cannot be funded by the Futures Insurance Funds, Binance will be unable to take over such Bankrupt Positions. In this case, the matching engine will automatically liquidate the Bankrupt Positions and some opposing non-bankrupt trader’s positions. This process is called “Auto-Deleveraging.” During this process, Binance will liquidate the bankrupt trader’s positions and select opposing users in order of leverage and profitability, from which positions are automatically liquidated to cover for the losing bankrupt trader’s position. Please refer to “What is ADL and How Does It Work?” for more information about Auto-Deleveraging and how it works.
Binance offers USDT-margined and USDC-margined futures contracts under USDⓈ-M Futures. The following is the composition of Insurance funds for USDⓈ-M contracts:
BTC, ETH, and BNB USDT-margined contracts share the same insurance fund.
DOT, LINK, XMR, ADA, BCH, EOS, ETC, LTC, TRX, XLM, XRP USDT-margined contracts with a maximum leverage of 75x share the same insurance fund.
Other USDT-margined contracts share the same insurance fund.
USDC-margined contracts share the same insurance fund.
Binance also offers coin-margined contracts. All coin-margined contracts which use the same cryptocurrency asset as collateral will share one Futures Insurance Fund. For example, BTC coin-margined perpetuals and delivery contracts will share the same Futures Insurance Fund.
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