liquidation process on FTX based on the blog
so ftx follows the bitmex blueprint with the "normal L orders"..but when u have large Ls then the backstop system kicks in..which is a black box in the end bc "internalize" can mean anything
Our Liquidation Engine — how we significantly reduced the likelihood of clawbacks from ever occurring
the purpose cld be to prevent claw backs and ADL events - which sam was proud of - to the expense that a LP like alameda was possibly internalizing a lot of large L on their book...on the other hand alameda was able to also make a lot of moonies by using sell walls as backstop
in any case liquidations dont take liquidity but add liquidity!...they dont generate (toxic) flow themself but to the contrary might stimulate opposing flow by L hunters which is what is wanted
now...in the case of BTC or ETH perps that process might work out...but in the case of luna or FTT perps it might break down and at some point the death spiral is unpreventable
the whole liquidation process is a process that is unique to crypto derivs afaik ..it was designed to prevent costumer balances to go into neg territory at all costs not matter what for obs reasons
but in the end this process cld have failed big time..
i sld have said
"followed"This post is based on this twitter thread.