Crises Have Driven the Evolution of Crypto Perpetual Futures

On March 12, 2020, BitMEX had buy orders for only 20 million dollars against 200 million in liquidation sales waiting. Thus, crises have driven the evolution of crypto perpetual futures.

Key Points

• Auto-deleveraging originated from Huobi, before being adopted by BitMEX.

This imbalance tells a recurring story. The BitMEX halt interrupted a cascade of liquidations that threatened the BTC derivatives market, and crises pushed for changes in collateral, liquidation systems, and rules linking contracts to spot prices.

The BitMEX Halt That Stopped the 2020 Liquidation Cascade

During the crash on March 12, 2020, BitMEX disconnected its servers, preventing pending liquidation orders from overwhelming remaining buy offers.

Officially, the platform attributed the interruption to a DDoS attack. However, historical accounts describe Arthur Hayes disconnecting the platform to prevent a systemic collapse.

In just over twelve hours, the price of Bitcoin plummeted from about $7,800 to $3,800. Market makers withdrew liquidity, while blockchain congestion hindered arbitrage.

The BitMEX contract traded for a moment $500 below the spot price on Coinbase. A signal of how quickly price anchors give way under stress.

Price Anchors and Insurance Funds in the Evolution of Crypto Perpetual Futures

Perpetual futures have no expiration and use funding payments to bring their price closer to spot markets. BitMEX complemented this mechanism with an external index of the spot price.

There is also a "smoothed" mark price, which establishes liquidations instead of reacting directly to sudden spikes in the order book.

From Socialized Clawbacks to Auto-Deleveraging

The way losses were distributed also changed. On August 3, 2018, a position of about 50,000 BTC on OKEx's quarterly futures showed the cost of socialized clawbacks: profitable traders ceded part of their gains to cover the failure of another trader.

Huobi developed auto-deleveraging (ADL) between 2014 and 2015, and BitMEX adopted a modified version in 2016. Instead of spreading losses across many, ADL forcibly closes highly indebted and highly profitable counterparties.

BitMEX acknowledged the borrowing in a blog post in 2025: <<We copied Huobi's ADL mechanism, but with some tweaks>>.

The Role of Insurance Funds

Insurance funds absorb shortfalls from liquidation before ADL kicks in. Those of major exchanges range from hundreds of millions to over $1 billion.

Public data on balances indicates that Binance has funds between $500 and $800 million at the beginning of 2026. The fund of Bybit for perpetuals in USDT exceeds $400 million.

Margined Stablecoin Contracts and Partial Liquidations

After 2020, margined contracts in stablecoins replaced inverse products with coin margin. When crypto collateral fell, losses from trading worsened during crashes.

Partial liquidation replaced "all or nothing" closures: positions are reduced in stages, without automatically unloading an entire account's portfolio.