Moreno

Waking up to see this post, I'm a exhausted, disappointed, and heart broken to see it go viral and to see the responses. No one cares about our users more than our team, and if you take the time to actually read our Discord and my tweets over the past day, I hope you'll see that. The team has spent the past 24 hours all hands on deck to make sure every single user story has been accounted for. I don't have a crisis management team for this post. I honestly am shocked by it, given how much of a disconnect there is between how we actually feel, our actions, and the sentiment of the tweet. All I can do here is to give as much information as I can and to let the reader infer the truth. As most of our long time users know, we often make mistakes, but we always do the right thing. This post appears to have taken a reply to a question out of context, where I'm explaining why something happened at a technical level. It doesn't mention our policy, our response, or what we're actually doing after yesterday's massive liquidation cascade. The truth is that - We paid out each and every trader *yesterday* immediately and automatically without issue. This has never been an issue. - If you read our Discord announcements, you'll see that there has been zero clawbacks and zero socialized losses. - We published our daily proof of reserves yesterday and the exchange has been operating uninterrupted since yesterday (although certainly with plenty of hiccups along the way) - However, liquidity dropped off significantly when the market collapsed, causing a cascade of liquidations and ADLs on Backpack and every other exchange. - As you can imagine, due to the massive liquidations, there are a lot of questions about what happened, e.g., what's auto deleveraging? - This quoted screenshot and the associated tweet is completely taken out of context and doesn't communicate what is actually happening. The screenshot, in truth, is a somewhat technical reply illustrating *how* futures profits and losses work. It is *not* a policy choice in response to any incident. It's explaining *why* something happened. For those that don't have the context, here are the details: - Firstly, Backpack is a completely neutral party. The exchange doesn't take on positions for users. We don't provide liquidity ourselves. The whole system works without reliance on any priviledged trader, vault, or any other party. In essence, it's infrastructure acting as a peer to peer match making service/exchange between longs and shorts, winners and loser. - Every long has a short. This is a fundamental invariant of any perpetual futures system. - When positions are closed, there is a settlement process, where profits and losses are exchanged between longs and shorts, winners and losers. Profits for perps are not printed out of thin air. It is not taken directly from our wallets either. Settlement is an intermediate step to realize the PnL. - Winners on perps earn profits from losers. It's zero sum. That PnL is always conserved between the two parties on any given trade. Your counter party is the person on the other side of the exchange. When you profit on a perp, the losses are paid out directly from losers. If the losers run out of money, e.g., due to going bankrupt, then there's no money for the winners to realize their profits. What happened yesterday, and what this quoted post is referring to, is that some of the losers went bankrupt and as a result their accounts were stuck in this "settlement" step. As a result, when those losing positions deposited into the exchange, the settlement process was able to automatically complete and the winners were automatically paid. The issue: a small amount of these bankrupt users deposited into the exchange *before* we settled all accounts on the exchange on behalf of user. What the quoted post fails to mention is that we did this already, yesterday, before we published our daily proof of reserves, and we did this without question because it's simply the right thing to do. Make no mistake: all positions have been settled without question across the board. We did not touch a single penny of unrealized PnL from our users and will never do so. Going back to the topic of settlement mechanics. Settlement is not some horrible decision we made where we decided that we would take money from users after yesterday's event. It's a fundamental part of how the peer to peer system works: Loser pay winners directly. The exchange itself is not the counter party for a trade. The counter party is the person on the other side of the trade when you open a long or a short. As a result, there's never a run on the bank risk. That's one of the many reasons why we are so comfortable publishing proof of reserves every single day, even on a historic liquidation day like yesterday. Even if the whole system were to blow up, the losses, contagion, and risk is isolated between all the longs/shorts, winners/losers. Anyone holding spot with no leverage is unaffected. This is a relatively technical point but it's an important one. We put an enormous amount of work into designing a system robust to these types of situations. Risk isn't an after thought, it's a core part of how the whole system is built. To any user that deposited while their account was being settled--or to anyone that was unexpectedly affected for any reason--they should please email [email protected] and give us any and all information so that we can help. We are also present in Discord to answer questions. We do our absolute best to be available there all day every day, although in this case email is a lot easier for us to stay organized to move as quickly as possible. In any case, I hope this clarifies the below quoted tweet, and what is actually happening. Honestly, we try to be some of the most approachable people we can. There's no question we don't answer. There's no PR crisis management team, here. We just do the right thing and hope that is good enough for the world. We've put our heart and souls into our product, users, and community, and we will continue to do so. Thank you for reading.