BitMEX describes its increasing insurance fund – currently worth over $75 million – as a “needed” reservoir for holding its unlimited upside model of leveraged trading, citing the “unique challenges” related to operating outside the institutional financial system and its safeguards.
CryptoCompare’s most recent exchange review states, the Seychelles-registered exchange hosts the vast majority of the world’s bitcoin perpetual derivatives/futures trading, consistently in the orbit of 90-95% – more than the US-regulated CBOE and CME markets altogether.
BitMEX Research compare their operations to those of their institutional competitors, such as the CBOE and CME also they enumerate several layers of protection available to those institutions, BitMEX must cope to not have.
Emphasizing that solvency is especially important for institutional actors, whose market positions can be so large that failure to support trades could result in a risk to financial/social stability.
Hence BitMEX’s mechanic of reclaiming the entirety of a losing trader’s position after it reaches its margin limit, also know, as “liquidating,” which occurs in lieu of the equivalent “margin call.” BitMEX utilize liquidation to pay winning traders, adding to the insurance fund – if and only if market flow is “tighter than the maintenance margin.”
BitMEX make the case that this 21 thousand bitcoin fund is needed to cover gains owed to traders, pointing out that the fund has been entirely liquidated before and could happen again.
Others perceive this giant fund as excessive, and even as perverse incentive for BitMEX to trade against their own customers – allegations which the exchange denied.
Independent crypto researcher Hasu has in no uncertain terms called the fund “larger than it needs to be” and speculated that BitMEX may use the fund as a “second additional income stream other than commissions.” By way of evidence, he observed that money goes missing from the fund periodically.
While taking issue with the fund’s size, Hasu ultimately considers it a secondary concern. His “main concern” is with the status of the fund’s ownership; namely, the insurance fund is squarely controlled by BitMEX rather than “an external insurer or industry consortium.”
CryptoGlobe reported last month on the possibility that US authorities could shut down the offshore exchange, due to failure of adequate measures in keeping North American users off its platform.
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