Which Futures Exchanges Typically Use the Socialized Loss Model?
The socialized loss model was more prevalent in the early days of crypto futures trading. Some smaller or decentralized exchanges (DEXs) might still employ variations of it.
However, most major centralized exchanges (CEXs) like Binance, Bybit, and OKX have moved away from socialized loss in favor of the insurance fund and ADL system. The older model was often criticized for its lack of precision and fairness.
Glossar
Centralized Exchanges
Exchange ⎊ Centralized exchanges (CEXs) represent a critical infrastructure within cryptocurrency markets, facilitating order matching and settlement for a diverse range of digital assets, including options and derivatives.
Socialized Loss Model
Mechanism ⎊ A Socialized Loss Model within cryptocurrency derivatives represents a risk-sharing protocol where losses incurred during adverse market events are distributed amongst a wider participant base, rather than being solely borne by individual traders or a centralized counterparty.
Decentralized Exchanges
Access ⎊ These platforms offer permissionless entry to cryptocurrency and tokenized asset markets, democratizing capital deployment into novel financial structures.
Socialized Loss
Mechanism ⎊ Socialized loss, within cryptocurrency derivatives and options trading, describes the distribution of losses across a broader participant base than those directly holding a losing position, often amplified by leveraged exposure and cascading liquidations.