Why a Winning Bitcoin Hedge Can Still Be Cut by an Exchange

Binance said in an October 31 recovery update that it had redeployed part of its futures insurance fund while the fund remained above the minimum required by its risk framework. The fund covers the gap when a leveraged trader’s margin is exhausted and a position is liquidated, and it is shared by BTC, ETH and BNB USDT-margined contracts; once a pool’s takeover capacity is exceeded, Binance uses auto-deleveraging, or ADL, closing opposing traders’ profitable positions. Binance’s guarantee against ADL on seven contracts, including key BTC contracts, applies while their combined open interest is at or below 10 billion USDT; above that, it compensates losses from insurance funds but does not reopen closed positions.