Huobi DM Introduces Circuit Breakers and Other Measures to Prevent Liquidation Disasters

March 20, 2020 / by Crypto.IQ

A week ago there was calamity on crypto derivatives markets due to mass liquidations. Apparently BitMEX liquidated $700 million of positions in just 15 minutes, leading to great losses for traders and also damaging the underlying crypto spot market. Huobi DM, which is basically the Huobi version of BitMEX, is instituting circuit breakers and other measures to do their part to prevent liquidation catastrophes.

Just like in traditional stock markets, if the price of Bitcoin (BTC) sees a major and rapid drop, Huobi DM will pause all liquidations. This will prevent the formation of liquidation chain reactions, which cause the entire order book to evaporate in a wave of liquidations. Further, this will help to protect the underlying spot market. Also, this will shield traders against flash crashes.

Another feature that Huobi DM is launching is partial liquidations, where instead of liquidating a position all at once it will be liquidated in phases, dampening the effect of liquidations on the market.

Although these measures are definitely good for protecting crypto derivatives traders and the crypto market in general, they will not make much of a difference until all the other crypto derivatives exchanges, especially BitMEX, adds circuit breakers.

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