FTX significantly reduces the likelihood of clawbacks by using a three-tiered liquidation model:

## Step 1:

If the account’s margin fraction is less than maintenance margin but above auto-close margin fraction, then:

Approximately every 6 seconds, we send 10% of the position size as a order on the market, between 1 and 5 basis points through the book, with the constraint that the total sizes of liquidation orders is less than 0.0001 times the average daily volume of the underlying coin summed across all liquidating positions.

Specifically:

- Every second, for each future, with probability ⅙:
- Set max liquidation size remaining to 0.0001 times the underlying advantage (note: this is a global max shared between all accounts)
- For each account whose margin fraction is between maintenance margin and auto-close margin fraction, in random order:
- Set order size to 10% of position size
- Bound order notional from below by min($1000, position size)
- Bound order size from above by max liquidation size remaining
- Multiply order size by uniform(0.5, 1.5)
- Bound order size from above by position size
- Decrease max liquidation size remaining by order size
- Send order uniform(1bp, 5bp) through the book, expiring 1 second later

## Step 2:

If the account’s margin fraction is less than auto-close margin fraction, then:

Every second, auto-close (1 - margin fraction / auto-close margin fraction) * position size, bounded below by min($1000, position size). If margin fraction < 0, auto-close the entire position.

Backstop Liquidity Providers (BLPs) have a max capacity per minute and per hour. Position is closed against BLPs in proportion to remaining capacity. If BLPs total capacity is insufficient, the remaining size is closed against users with large opposing positions (starting with the top 10 opposing positions, more if their total is insufficient), in proportion to their position sizes.

Liquidated account closes at ZP. Other side closes at ⅔ * ZP + ⅓ * MP, but not worse than MP plus MP * 10% * auto-close margin fraction. Insurance fund covers the rest--i.e. it gets ⅓*abs(MP-ZP) if the account isn’t yet bankrupt, and pays abs(MP-ZP) + 0.1 * MP * ACMF if it is. If account is bankrupt and insurance fund is empty, remaining is taken from positions with positive unrealized pnl (portionally to pnl).

If a contract hits a circuit breaker, MP is the premium as of when the circuit breaker was enacted plus current index price.

## Step 3:

Whenever an account hits the auto-close margin fraction, the insurance fund steps in. If the account isn't yet bankrupt, then the insurance fund **gains** 1/3 of the remaining value of the account. If the account *is* already bankrupt, then the insurance fund **pays** the negative value of the account (plus 10% of the auto-close margin fraction) to prevent clawbacks.

Customers will only have their positions auto-closed if an account hits auto-close margin fraction *and* the backstop liquidity providers are out of capacity. Customers only face clawbacks if an account goes bankrupt *and *the insurance fund is empty.

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