On July 31, 2018, at 20:17:14, an abnormal liquidation occurred in the BTC0928 contract — a single sell-to-close long position of 4,168,515 contracts triggered a significant loss and raised concerns about potential high loss-sharing (clawback) ratios. Loss-sharing is a fundamental risk management mechanism across all derivative platforms, designed to protect the integrity of the market when a user's position cannot be fully liquidated at a viable price. OKX does not profit from clawbacks; instead, clawback funds are used solely to cover losses and maintain platform stability.
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To illustrate how clawbacks work, consider this simplified scenario: Two users, A and B, each deposit 1 BTC as margin (valued at $1). At a price of $1 per contract, User A opens a 10x leveraged long position on 10 contracts, while User B takes a 10x leveraged short on the same. If the index price drops to $0.10, B should gain $9 in profit, but A only has $1 in margin — insufficient to cover the full loss. As a result, B can only realize $1 in gains; the remaining $8 would be covered by the insurance fund or distributed via clawback among profitable traders. OKX continuously enhances its risk engine to minimize such events through mechanisms like pre-liquidation triggers, price capping (limiting liquidation order prices within ±1% of market), and dynamic margin adjustments.
Incident Overview
An account (User ID: 2051247) began aggressively accumulating long positions early on July 31. OKX’s risk monitoring systems immediately flagged this abnormal behavior. The risk team contacted the user multiple times urging reduction of exposure to mitigate systemic risk. Despite repeated warnings, the user refused to cooperate. As a precaution, OKX froze the account. However, due to a sharp decline in BTC price shortly afterward, the position was ultimately liquidated, resulting in a large deficit.
According to Section 6.2 of the OKX Derivatives User Agreement:
OKX reserves the right to issue warnings, restrict trading, or suspend accounts involved in market manipulation or unethical trading behavior. When necessary, OKX may pause trading, cancel transactions, or roll back specific timeframes to mitigate negative impacts.
Additionally, Section 6.3 states:
If a user’s position or order volume poses significant risk to the system or other users, OKX may require order cancellation or position reduction. In extreme cases, OKX may impose limits on total positions, restrict new orders, or force liquidation to manage risk.
Immediate Response and Compensation Measures
To ensure fairness and minimize impact on the broader user base, OKX has taken the following actions:
- Injected 2,500 BTC from company reserves into the insurance fund to reduce clawback exposure for affected users.
- Enhanced settlement safeguards: If any manipulation of the settlement price is detected before the August 3 settlement, OKX will delay settlement by 10 minutes, manually adjust the final settlement or delivery price to a reasonable level, and freeze the manipulating account’s trading and withdrawal privileges.
These steps reflect our commitment to market integrity and user protection.
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Upcoming Risk Control Upgrades
To prevent recurrence and strengthen platform resilience, OKX is rolling out a comprehensive series of risk management improvements.
1. Launch of Anti-Manipulation Strategy (Scheduled: August 4)
This upgrade targets excessive leverage abuse by adjusting margin requirements based on position size.
Unified Margin Mode:
- Larger positions will require proportionally higher margins.
- This increases the cost of malicious manipulation and improves liquidation reliability.
Isolated Margin Mode:
Imposes maximum position size limits based on leverage:
- 10x leverage: Max open contracts capped
- 20x leverage: Stricter cap to limit systemic risk
Additionally, we are simplifying the margin ratio calculation by removing the "adjustment coefficient" for clarity:
Old Formula – Unified Margin: Margin Rate = Account Equity / (Position Margin + Frozen Order Margin) – Adjustment Coefficient
(10% for 10x; 20% for 20x)
New Formula – Unified Margin: Margin Rate = Account Equity / (Position Margin + Frozen Order Margin)
Liquidation triggers:
- 10x leverage: When margin rate ≤ 10%
- 20x leverage: When margin rate ≤ 20%
Old Formula – Isolated Margin: Margin Rate = (Fixed Margin + Unrealized PnL) × Entry Price × Leverage / (Contract Value × Position Size) – Adjustment Coefficient
New Formula – Isolated Margin: Margin Rate = (Fixed Margin + Unrealized PnL) × Entry Price × Leverage / (Contract Value × Position Size)
Same liquidation thresholds apply.
Note: While formulas change conceptually, actual liquidation timing remains unchanged.
2. Introduction of Mark Price (Testing – Launch by End of August)
To prevent artificial liquidations due to short-term price manipulation, OKX will adopt Mark Price for calculating unrealized PnL and triggering liquidations.
Mark Price = Spot Index Price + EMA(Contract Market Price – Spot Index Price)
By incorporating an exponential moving average (EMA) of the basis spread, this method smooths out temporary distortions caused by large market orders. Even if a whale manipulates the order book momentarily, the mark price will not spike abruptly — reducing false liquidations and improving fairness.
3. Tiered Risk Limits & Liquidation Flow Optimization (Development Started: August 7 – Launch: September)
Tiered Risk Limits
Positions will be classified into tiers. Larger positions require higher maintenance margins to ensure sufficient buffer during volatility.
Optimized Liquidation Process
Instead of full forced liquidation, the system will now attempt partial deleveraging:
Example:
A user holds 100,000 contracts under Tier 3 (maintenance margin rate: 2.5%). Tier 2 allows up to 80,000 contracts with a 2% rate. The system automatically reduces 20,000 contracts to meet Tier 2 requirements. If still undercollateralized, it continues reducing until reaching the lowest tier.
This minimizes forced full closures and preserves trading capital.
4. Insurance Fund Deduction Optimization (Development Begins Mid-August – Launch: September)
To cap losses from unfillable liquidation orders:
- Deduct maximum possible loss from insurance fund immediately upon detection.
- Re-list unfilled portions at optimal market prices for faster execution.
- If fund reserves are insufficient, standard clawback applies at weekly settlement.
This limits cascading losses and protects market stability during extreme moves.
Frequently Asked Questions
Q: What is a clawback (loss-sharing)?
A: Clawback occurs when a liquidated position results in a deficit that exceeds available insurance funds. The loss is then shared among profitable traders based on their gains.
Q: Why did OKX inject 2,500 BTC?
A: To absorb part of the deficit and reduce the clawback burden on users — demonstrating our commitment to fairness and platform stability.
Q: How does mark price prevent manipulation?
A: It uses a smoothed index based on spot prices and historical basis spreads, making it resistant to short-term order book manipulation.
Q: Will these changes affect small traders?
A: No. These upgrades primarily target large-position risks. Small traders benefit from improved fairness and reduced false liquidations.
Q: Can OKX cancel trades arbitrarily?
A: Only under extreme circumstances involving malicious behavior or system threats, as clearly stated in our user agreement.
Q: How can I provide feedback?
A: We welcome suggestions at [email protected] to help us improve continuously.
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We remain fully committed to building a safer, more transparent derivatives ecosystem. These upgrades represent critical steps toward that goal — ensuring resilience, fairness, and trust for every user.
Keywords: BTC contract, liquidation event, risk management, insurance fund, mark price, forced liquidation, loss-sharing, derivatives platform