Backstop Liquidity Provider Program

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Participating in Backstop Liquidity Provider program means that you pledge to take on the positions from accounts near bankruptcy.

As part of this program BLPs are required to keep a minimum of $500k of balances on FTX and be willing to absorb a minimum of $0.1m per minute and $0.3m per hour of liquidations.

BLP participation is offered on an invite-only basis to those in the MM7/VIP7 volume tiers. If you’re already in these tiers and interested in participating, please contact us.

 

Example

Notes: all prices quoted are the mark price of the future.  BTC here means the BTC perpetual future.  The auto-close margin fraction will depend on the position.  It starts at 1.5% for 20x leverage or below and 0.3% for 50x leverage or above.  There is a position cap of about $2.5m for high leverage.  For 20x leverage or below, the auto-close margin fraction increases with position size.  For details about how auto-close margin fraction, maintenance margin, etc. are calculated, see this article.

 

Say an account uses $1,000 as collateral to buy 2 BTC at $10,000 each using 20x leverage.  The account is now using $1k as collateral for a $20k position.

The account's maintenance margin will be 3%.  Once BTC drops roughly 2% to $9795.45, it will have 3% remaining margin (33x leverage) and so it will begin to get liquidated.  These liquidation orders will trade in the market as if the account were normally selling BTC.

The account's auto-close margin fraction--the point at which the Backstop Liquidity Provider system kicks in--will be 1.5%.  So if BTC drops to about 9646 while the account still has a position of size 2 BTC, the account have a margin fraction of 1.5% (meaning roughly 67x leverage).

At this point, the account would start being passed off to the backstops.  The account's remaining equity is 1.5% of its position size.  1/3 of that equity--so about 0.5%--would be paid to the backstop liquidity fund.  The account would be left with a position of size 2 BTC and about 1% of spare equity; this remaining position would be passed to the backstop liquidity providers.

This means, equivalently, that the backstops would be paid 1% to buy 2 BTC at the market price of 9646; or that the backstops would buy 2 at 1% below the market price, or about 9550.

 

 

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