# Welcome [Backpack Exchange](https://backpack.exchange/) is a fully regulated global cryptocurrency exchange building an innovative, easy-to-use and compliant trading platform. Built on robust, real-time risk management, Backpack’s engine automatically aggregates all user assets into a single, cross-margined environment while simultaneously enabling auto lending. This allows traders of all sizes to access advanced trading tools typically reserved for institutional participants on other platforms. * **150+ Countries** * **500M+ Transactions Completed** {% embed url="" %} *** ### Yield on Everything #### Auto Lending Architecture With Auto Lend, all of your deposited assets are automatically entered into our lending pool, generating yield for you by default. These assets remain fully margin-eligible, eliminating the friction of having to manage separate “earn” accounts. #### Yield on Unrealized Gains Even unrealized position PnL is considered part of your total collateral, which continues to accrue yield until the position is closed.\ \ **Additional Yield from Stablecoins** Lend USD and stack an **additional APY** on top of the lending rate when lending eligible stablecoins. This boost comes from Stablecoins Treasury yield exposure through a curated stablecoin basket. Distributions are paid out **monthly**, in line with how treasury yield is delivered. #### **Earn extra SOL lending Rewards** Your lent SOL now additionally earns the **native SOL staking yield**. Backpack Exchange stake their own SOL reserves and provide the full staking yield to all lenders. Your SOL is not only margin-eligible, but also enabling you to passively benefit from staking rewards. *** ### Collateralization of Lent Assets Any assets you lend out can be utilized as margin for new trades, further enhancing your capital efficiency. Backpack’s yield system is deeply integrated into the exchange’s core risk engine to ensure you retain full collateral value while earning interest. *** ### Capital Efficiency for All #### Institutional-Grade Tools, Retail Accessibility Backpack’s risk engine, cross margin, and auto-lending are designed to offer every user the kind of capital efficiency typically locked behind VIP tiers on other exchanges. #### No Gatekeeping Lower-tier users are not subjected to punitive margin requirements or restricted from advanced products. We focus on an inclusive design to level the playing field. *** ### Settlement Flexibility #### Continuous Realization Our settlement engine allows you to partially realize PnL on a rolling basis, adjusting or locking in gains without requiring a full position close. #### Adaptive Strategy Customization This continuous settlement mechanism is particularly useful for hedging, high-frequency arbitrage, or complex multi-leg strategies. *** ### Competitive Fees #### Aligned with Leading Exchanges Backpack’s fee structure is comparable to the most cost-efficient platforms in the market *** We built this system from the ground up to create what we like to call Interest Bearing Perps - a system that blends perpetual trading with a borrow lending market so your collateral works overtime. Have 30 seconds? Check out our quick Interest Bearing Perps walkthrough: {% embed url="" %} # Onboarding To trade on Backpack Exchange you will need to create an account, complete identity verification and deposit funds (via fiat onramp or crypto deposit). *** ### Create an account and complete identity verification Visit [backpack.exchange](https://backpack.exchange/) and register a new account. After verifying your email, complete the KYC (Know Your Customer) identity verification process. See detailed instructions: * [Verify Individual Account Identity](https://support.backpack.exchange/articles/verify-individual-account-identity-backpack-exchange) * [Verify Institutional and Business Account Identity](https://support.backpack.exchange/articles/verify-institutional-and-business-account-identity) *** ### Deposit fiat or crypto funds Once the KYC process is completed you can fund your wallet via our fiat onramp (bank transfer, credit/debit card) or direct crypto deposits. Access both options by opening the Deposit menu. * [Deposit crypto using Backpack Wallet](https://support.backpack.exchange/articles/deposit-crypto-on-backpack-exchange-wallet-via-backpack-wallet-browser) *** ### Start trading on Backpack Exchange Spot market, Spot margin, Perpetual futures and Safe are all available to Backpack users. See our [Backpack Help center](https://support.backpack.exchange/) for detailed instructions and additional product information. * Contact Customer Support in [Discord](https://discord.gg/backpack) or by email: # Trading # Margin Backpack follows a multi-currency, cross-margin model designed to maximize capital efficiency. Unlike other exchanges that force you to segregate your balances in separate wallets (spot, futures, margin, earn, etc), Backpack offers a single cross-margin wallet that can be used to trade all products. If you would like to isolate risk, you can seamlessly create a new subaccount, which is completely segregated from other subaccounts.
You can use a variety of non-USD assets as collateral, which contribute towards your account equity in order to open and maintain futures and borrow positions. To provide the highest level of capital efficiency amongst all centralized exchanges, Backpack allows you to use 100% of lent assets as collateral, enabling them to earn yield even when it's being used to maintain positions. Additionally, unrealized profits are cycled into the borrow lending pool and generate yield as well, providing further capital efficiency. Here's a quick video walkthrough that shows you how it works: {% embed url="" %} *** ### Collateral Collateral on Backpack is calculated in USD terms. Assets that are eligible for collateral receive a Collateral Value, which contribute towards your Net Equity. Collateral Value is calculated as follows: ***Token Quantity \* Mark Price \* Weight*** Each collateral asset has a default Collateral Weight, or in other words, a haircut. An asset's Collateral Weight may decrease based on how large the collateral amount is to adjust for risk and the time needed to liquidate. The Collateral Value curve for each of your assets can be found in the statements page. Here’s an example to illustrate how Collateral Value is calculated (note that the haircut values below are not accurate. Check the statements page to see the actual weights): As illustrated above, while this user holds $120,000 worth of assets, their Total Account Collateral (i.e. the sum of the Collateral Value of all their assets), is $116,300. *** ### Equity #### Net Equity Equity represents the risk-adjusted value of your account, which can be used to maintain futures and borrow positions. This is also known as your Margin Balance. Net Equity is calculated as follows = ***Total Account Collateral + Total Unrealized PnL + Unsettled Balances - Total Borrow Liability*** You can find all these values and a full breakdown of your account’s equity in your [statements page](https://backpack.exchange/portfolio/balances/statements). #### Available Equity Available Equity is the capital you can use to open new positions or orders. It's calculated as ***Net Equity - Equity Locked***, where Equity Locked represents margin tied up in open positions and orders that increase exposure. To maximize efficiency, your unrealized profits also count toward Available Equity. *** ### Margin Your Account Margin (AKA Margin Health) can be evaluated using these two data points: **1) Initial Margin Rate (IMR)** - this illustrates how much Available Equity is left to open new positions. Once IMR reaches 100%, no new positions that increase risk can be opened. IMR = ***Total Initial Margin / Net Equity*** You can see your Initial Margin Balance (i.e. how much initial margin is being used across all your positions) in the Margin Overview section on the trade page when you hover over your Initial Margin percentage. As a rule of thumb, the Initial Margin required to open a new position can be calculated as follows: ***Initial Margin = Position Notional Value / Max Account Leverage*** For example, if your max account leverage is 10x and you want to open a $10,000 position, your initial margin will be $1000. However, keep in mind that, just as with Collateral Value, as the size of the position increases, the initial margin requirement may increase as well to adjust for risk. Additionally, margin requirements may differ by market. For example, if the baseline Initial Margin Fraction (IMF) for a given market is 0.20, the initial margin requirement will be 20% of position size (ignoring large sizes), even when the max account leverage is 10x. To see the margin requirements for a given market, check the Margin tab on the trade page. To see how much Margin a new position requires before submitting an order, you can see the Margin Required value when placing an order. To see how much margin an existing position is using, see the Initial Margin column in the Positions tab. **2) Maintenance Margin Rate (MMR)** - this shows how far your account is from getting liquidated. Once MMR reaches 100%, your account will start getting liquidated. MMR = ***Total Maintenance Margin / Net Equity*** As a rule of thumb, the Maintenance Margin Fraction (MMF) starts at 5%. However, same as with Initial Margin, your Maintenance Margin requirements may increase depending on the size of your position and also may differ by market. To see your Maintenance Margin (i.e. the total maintenance margin used across all of your positions), hover over your Maintenance Margin percentage in the Margin Overview section on the trade page. *** ### Subaccounts Backpack’s margin model is centered around subaccounts. Every subaccount is cross-margined, multi-currency, and has access to all products (spot, futures, spot-margin, borrow, lending). To illustrate the simplicity of this model, if you deposit USDC and BTC, your Net Equity increases and you can start trading all products right away without taking any extra steps. No need to move assets around wallets to start trading. Moreover, **subaccounts are completely segregated from one another**. This means that any funds sitting in one subaccount are not exposed to another subaccount that might be getting liquidated. Balances and risk are completely isolated at the subaccount level, allowing you to run different strategies and determine how much in assets you want to put at risk. If you prefer to trade with Isolated Margin, you can open a position in a different, isolated subaccount. You can create up to a maximum of 10 subaccounts and seamlessly transfer funds between each other.
*** ### Leverage Max leverage on Backpack is set at the subaccount level. You can choose how much risk you want to take on a given subaccount across all your positions by editing your Max Account Leverage in a given subaccount. When you change your Max Leverage, the initial margin used by open positions and future orders will change as well. *** ### Non-USD Collateral Futures on Backpack settle in USDC. This includes fees, funding payments, and PnL. If you have both USDC and non-USDC collateral (e.g. BTC), the system will use your USDC balance to cover these settlements. When you have insufficient USDC but holds other collateral like BTC, the system automatically creates a USDC borrow to cover settlement payments instead of selling the collateral. For example, if the user needs to cover a 1 USDC fee to open a position, the system creates a 1 USDC borrow rather than liquidating any BTC. In the case that the USDC lending market's utilization rate exceeds the throttle threshold or if you get liquidated while using Non-USDC assets as collateral, your collateral will get converted to cover the settlement payments. These conversions would appear on Reconciliation Conversions in the Settlements [tab](https://backpack.exchange/portfolio/settlements/reconciliation-conversions). # Spot Margin Backpack offers a Spot Margin trading product that empowers you to go long or short on spot assets beyond current wallet balances. Behind the scenes this system leverages Backpack’s real-time liquidation engine and the transparent borrow & lending market to enable capital-efficient spot trades. All spot margin positions on Backpack tap into the same lending pools and are subject to the same margin requirements and liquidation processes that govern the broader borrow & lending framework. This ensures that: * You can automatically borrow the assets you need to complete a spot trade. * Borrowers are always sufficiently collateralized, with the platform liquidating positions if necessary. *** ### Enabling Spot Margin Before placing a margin trade, you need to ensure Margin Trading is enabled in the subaccount’s settings. With Auto Lend on, you can borrow via spot margin trades without needing to create manual loans—Backpack automatically borrows on your behalf whenever you trade beyond your spot balances. *** ### Margin Trading Spot Margin allows you to buy or sell an asset in amounts exceeding your available balance, seamlessly creating a borrow for the shortfall (or withdrawing the borrowed asset if you want to transfer it off-exchange). #### Example: 1. Enable Margin in your order form. 2. Place a Buy or Sell order for the desired asset in the spot market. 3. If you sell more than you hold (short selling) or buy more than your balance can cover, the system borrows on your behalf. *Example:* * You have 1,000 USDC but want to buy 2,000 USDC worth of SOL. * By checking the “Margin” box, Backpack automatically borrows the extra 1,000 USDC and completes your spot purchase. * You now have a long SOL position financed by a partial borrow. *** ### Repaying Margin Trades When you owe a certain asset due to a spot margin borrow, you can repay in the following ways: 1. **Auto-Repayment with Auto Lend** * If Auto Lend is enabled, any matching assets you acquire in your subaccount (via deposits, trades, or conversions) immediately go toward paying down your debt. 2. **Spot Margin** * Simply buy back the asset you owe. For instance, if you are short 10 SOL, placing a margin-enabled BUY for 10 SOL will automatically repay your SOL debt. 3. **Manual Repayment** * If Auto Lend is disabled, visit the Borrow tab (or the Borrow modal) and click Repay. Any assets you hold that match the borrowed asset can be used to repay. *** ### Margin Requirements & Collateral Spot Margin on Backpack uses the same cross-margin system as the rest of the exchange, meaning: * Collateral is calculated from all assets in your subaccount, each with its own “haircut” (collateral weight). * Maintenance Margin is monitored in real time. If your margin fraction (collateral vs. open positions) dips below the required threshold, liquidation is triggered. ### Key Points 1. **Initial Margin:** The collateral you need to open a position. 2. **Maintenance Margin:** The collateral you need to keep that position open without liquidation. 3. **Position Size:** For spot margin, your short or overbought balances count toward your total exposure. *** ### Why You Can’t Always Use Full Leverage Your maximum position size depends on: * Collateral Haircuts (some assets count less toward collateral due to higher volatility) * Borrowing Pool Liquidity (there must be enough supply for you to borrow) * Available Equity in your subaccount This means it’s not as straightforward as a simple “balance × max leverage” calculation. **Example** Suppose you have 100 USDC in your subaccount and the system allows 10× max leverage. Theoretically, you might assume you can buy $1,000 of SOL. * USDC is considered high-quality collateral (minimal haircut). * SOL may have a lower collateral weight (a “haircut”) due to higher volatility. * When you trade USDC for SOL, your collateral composition changes from “good collateral” to “riskier collateral.” As a result, the margin engine may limit your final position to, say, $800 of SOL, ensuring you retain enough stable collateral to cover potential volatility in SOL’s price. [For further details, refer to the Margin section.](broken://pages/ew6zI2u3pwSXa918fB4j) *** ### Utilization & Interest Rates Spot margin borrowing relies on the same borrow & lending framework as standard manual borrows. This means: * **Utilization Rate** = Total Borrowed / Total Lent. * **Borrow Rate:** Determined by the market’s Utilization Curve. Higher utilization means higher borrowing costs. * **Lend Rate:** Equal to Borrow Rate × Utilization. Lenders earn more yield as the pool’s utilization grows. Because spot margin taps into the same pool, your borrow is subject to the hourly interest charges outlined in the borrow & lending doc. You can track real-time utilization and interest rates on the Lend page for each asset. [For further details, refer to the Borrow & Lend section. ](/borrow-and-lend) # Futures Specs ### Overview * All subaccounts on Backpack are cross-margined. Margin is isolated per subaccount. * There is only one wallet to access all products (spot, futures, spot margin, borrow/lending). * Currently, markets are denominated and settled in USDC. * Lent assets can be used as collateral to open and maintain futures positions. Interest rates are determined by the public utilization rate curve of the Borrow Lend market. * PnL is continuously realized by default and counts toward net equity. Realized PnL earns or pays interest based on your borrow/lend exposure—surplus earns interest if Auto-Lend is enabled, while borrowed balances incur interest by default. * Liquidations first go through the orderbook, and upon hitting the auto-close margin, accounts are liquidated against Backstop Liquidity Providers. ### Margin & Collateral
ItemDescriptionFormula
Collateral ValueNotional value of collateral asset with haircut applied

\text{TokenSize} \times \text{MarkPrice} \times \text{CollateralWeight}
Total Account CollateralTotal value of collateral assets with haircut applied

\sum \text{(Collateral Value)} \text{ for all collateral assets}
Unrealized PnLPosition Unrealized PnL

\text{Position Size} \times (\text{Mark Price} - \text{Average Entry Price})
Net Exposure QuantitySize in tokens of current open positions and open orders that increase risk within a symbol

\text{Position Size} + \text{Open Order Size Of Orders Increasing Risk}
Net Exposure NotionalNotional size of current open positions and open orders that increase risk within a symbol

\text{Net Exposure Quantity} \times \text{Mark Price}
Total Exposure NotionalTotal notional sum of open positions and orders that increase risk across all symbols

\sum \text{(Net Exposure Notional)} \text{ across all futures and spot margin positions}
Base IMFPosition IMF without considering size

\max\left(\dfrac{1}{\text{maximum leverage on platform}}, \dfrac{1}{\text{maximum leverage set by user}}\right)
Position Initial Margin Fraction (IMF)Initial margin requirement for a position adjusted for position size

\max \left(\text{Base IMF}, \text{IMF Factor} \times \sqrt{\text{Notional Position Size}}\right)
Position Maintenance Margin Fraction (MMF)Maintenance margin requirement adjusted for position size

\max \left(\text{Base MMF}, \text{MMF Factor} \times \sqrt{\text{Notional Position Size}}\right)
Account IMFMinimum margin fraction required to open new positions

\max\left(\dfrac{1}{\text{max leverage}}, \dfrac{\sum \text{(Notional Position Size} \times \text{Position IMF)}}{\text{Total Exposure Notional}}\right)
Account MMFMinimum margin fraction required to not get liquidated.

\dfrac{\sum \text{(Notional Position Size} \times \text{Position MMF)}}{\text{Total Exposure Notional}}
Net EquityTotal net equity value of the account.

\text{Total Collateral Value} + \text{Total Unrealized PnL} + \text{Unsettled Balances} - \text{Total Borrow Liability}
Net Equity LockedTotal equity used to maintain open positions and orders that increase risk.

\text{Initial Margin Fraction} \times \text{Total Exposure Notional} \text{ summed across all token market positions}
Net Equity AvailableEquity available to open new positions.

\text{Net Equity} - \text{Net Equity Locked}
Account Margin Fraction (MF)How levered an account is given its current active positions and the mark prices of the coins.

\dfrac{\text{Net Equity}}{\text{Total Exposure Notional}}
Auto Close Margin FractionMargin fraction in which account is liquidated against BLPs.

\max \left(\dfrac{\text{Account MMF}}{\text{ACMF Divisor}}, \text{Account MMF} - \text{ACMF Offset}\right)
*** ### Mark Price and Index Price We have fallback logic to calculate the Mark Price. The order of preference is:
1. Index price + 1 minute EWMA of (mid price - index price) delta. The mid price is the mean of the best bid and best offer. 2. Index price. 3. Median of the best bid, best offer and last traded price on Backpack. 4. Mid price (mean of best bid and best offer) on Backpack. 5. Last traded price on Backpack. We will resort to using the fallback logic if we do not have the necessary data (e.g. it is stale). Markets in post only state will use the index price as the mark price until the order book state changes to open. For **Index Price**, we retrieve market price data from a set of exchanges. * For each exchange, we take the median of {best bid, best ask, last price} and use this as the market price. * We then calculate the median market price for the exchanges. * We apply a ceiling price of 100bps above the median and a floor price of 100bps below the median. If an exchange is outside of that, then they will be given the ceiling / floor price. * Each exchange is given a weighing that affects their weight. We use that weighting in a weighted mean average market price calculation for the set of exchanges. #### **Mark Price Bounds** We apply a constraint to prevent abnormal mark prices from affecting user positions. If the mark price deviates from the index price beyond a percentage threshold, Backpack will bound the mark price by that threshold. **Example:** If the index price is 100 and the threshold is 5%, the mark price will be constrained to the range \[95, 105]. This protection: * Prevents abnormal mark prices caused by manipulation or unusual market conditions * Protects user positions from unexpected liquidations *Note: This constraint may be relaxed for certain new listings where more volatile market conditions are expected.* *** ### Funding Rate *Note: on Wednesday August 20 at 08:00 UTC, the funding rate intervals across all perpetual futures markets were changed to hourly.* Funding rate = Clamp\[(mean\_premium\_index + Clamp(interest\_rate – mean\_premium\_index, -0.05%, 0.05%)) / 8, Funding rate cap, Funding rate floor] **The funding rate is calculated as follows:**
* Every second we record the premium index * premium = (mark price − index price) / index price * Average premium index = moving-average of those per-second premiums over the funding interval. * Interest-rate add-on * interest\_rate = 0.03 % × (funding\_interval\_hours / 24) * The funding rate floors and ceilings are set per market and can be found on the market specs [page](https://backpack.exchange/market-info/market-specs/futures) or fetched via API using the [markets endpoint](https://docs.backpack.exchange/#tag/Markets/operation/get_markets). * Funding payments are debited/credited at the end of the interval and are calculated as follows: * payment = funding rate × position quantity × mark price *** ### Price Bands #### Limit Price Bands * These are applied to limit orders. * We calculate the median of {best bid, best offer, last price}. This is called the Active Price. * We then have a configurable Max Multiplier and Min Multiplier parameters. * If a limit order is submitted with a limit price that exceeds Active Price \* Max Multiplier, then it is rejected. Conversely, if it has a limit price below Active Price \* Min Multiplier, then it is rejected #### Price Impact Bands * These are applied to taker orders. * We have parameters Max Impact Multiplier and Min Impact Multiplier. * If we have a buy taker order, we will only allow it to to take up to the price level of best offer \* Max Impact Multiplier. If the order is not fully filled at that point then we will expire the order and it will be partially filled. Converse logic applied for Min Impact Multiplier. #### Mean Mark Price Bands * We calculate the 5 minute moving mean average for the mark price, mean mark price * We then have 2 parameters Max Multiplier and Min multiplier * If a taker order is submitted, then we will allow it to fill up until the price level of mean mark price \* Max Multiplier . If the order is not fully filled at that point then we will expire the order and it will be partially filled. Converse logic applied for Min Multiplier . This is similar to the above price impact price bands. #### Mean Premium Bands * We calculate the 5 minute moving average of the premium, mean premium * We then have a parameter tolerance pct * If, e.g. the tolerance percentage is 1% and the mean premium is 3%, then if a taker order is submitted, we will only allow it full up to a price level at which the current premium is 4%. If the order is not fully filled at that point then we will expire the order and it will be partially filled. * If, e.g. the tolerance percentage is 1% and the mean premium is -3%, then if a taker order is submitted, we will only allow it full up to a price level at which the current premium is -4%. If the order is not fully filled at that point then we will expire the order and it will be partially filled. # Settlement and Realization Futures on Backpack settle in USDC. This includes fees, funding payments, and PnL.
If you have USDC in your account, then all USDC settlements will be debited from your USDC balance. However, in the case that you don't have USDC available in your account and therefore owe it to the system, Backpack considers the following options (in order): 1. Redeem any outstanding USDC lends 2. Borrow USDC from the borrow lending pool 3. Convert non-USDC collateral into USDC This means that you can trade futures without having any USDC in your account. *** ### PnL Settlement PnL on Backpack is settled in real-time. Every 10 seconds, any unrealized profits or losses are realized without affecting your position size. This means your USDC balance is continuously credited or debited as your PnL fluctuates. This real-time settlement model maximizes capital efficiency. For example, if you have a position with +$1,000 unrealized profit and want to physically use those assets (for spot, withdrawals, etc): * On traditional crypto exchanges, you would need to close your position to access that $1,000, or borrow against your increased equity. * With Backpack, that $1,000 profit is immediately credited to your USDC balance, allowing you to use it for spot trading, opening new positions, withdrawing from the exchange, or lending—all without reducing your original position. To further enhance capital efficiency, if you enable Auto Lend, all profits are automatically lent into the USDC lending pool to earn yield while your position remains open. Importantly, these lent assets still count 100% towards your equity, meaning you can simultaneously earn yield while using those funds to maintain existing positions and open new positions. The same process applies to losses. When your futures positions experience losses, your USDC balance is debited accordingly. This functions identically to traditional unrealized loss models in terms of liquidation risk—the only difference is in accounting. In both models, losses reduce your account equity, which affects your margin calculations and liquidation thresholds in exactly the same way. Whether your losses are "unrealized" on traditional platforms or "realized" through real-time settlement on Backpack, the risk management mechanics and liquidation parameters remain the same. If you don't have sufficient USDC collateral and are using other assets (BTC, SOL, ETH, or USDT), the system will automatically create a USDC borrow to cover any losses rather than liquidating your non-USDC collateral. # Fees At Backpack Exchange, our commitment to providing a transparent and competitive fee structure is paramount. The table below outlines the Spot Trading & Perpetual Futures fee tiers, enabling traders to easily identify the fees associated with their trading volume. * ‍[**Visit Backpack Exchange today.**](https://backpack.exchange/) We may change these fees for the next phase of launch and will post the updated fees here beforehand. *** **\*SUBJECT TO CHANGE\*** ### **Backpack Exchange Trading Fees**
{% hint style="info" %} ***Important Notes:*** * **Fee tiers are recalculated hourly, and your VIP status is updated accordingly.** * **Effective tier is determined based on your BP Stake, trading volume and pre-TGE Mad Lad NFT holding, whichever tier is highest.** * **Our USDT/USDC trading pair is subject to a 0% fee, which means that trades on this pair do not count toward your 30-day volume requirements for fee tier upgrades.** {% endhint %} *** ### **What are Maker and Taker Fees?** * **Maker Fee:** A "maker" is someone who places a limit order that adds liquidity to the market. This means the order isn’t filled immediately but waits for a matching order (opposite buy or sell) to come along. The fee incurred for such orders is called the "maker fee". Makers typically pay a lower fee as they contribute to the market's liquidity.
* **Taker Fee:** A "taker" is someone who places an order that matches immediately with an existing order on the order book. This takes liquidity away from the market. The fee for such orders is called the "taker fee". Takers typically pay a slightly higher fee due to the immediate nature of their trades. ### **How do Fee Tiers Work?** The more you trade, the more you save! Our fee structure is designed to reward high-volume traders with reduced fees. As your 30-day trading volume increases, you ascend through our tier levels, and your applicable fees decrease. Both maker and taker fees decrease as you move to a higher tier, allowing for a more cost-effective trading experience. Please refer to the table provided to view the fee structure across different tiers and the corresponding 30-day volume requirements. We aim to offer a seamless trading experience with a clear understanding of the associated costs.‍ **Note:** Fee tiers are recalculated **every hour**, so your tier status is updated regularly. # Market Maker Program Market makers on Backpack are eligible for maker rebates across spot and futures markets, and participate in a monthly equity reward pool valued at \~$195,000 for providing liquidity on perpetual futures markets. ### Overview Market makers on Backpack are eligible for maker rebates across spot and futures markets, and participate in a monthly equity reward pool valued at \~$195,000 for providing liquidity on perpetual futures markets. **To be eligible for this program, please reach out to us at** [**vip@backpack.exchange**](mailto:vip@backpack.exchange) *** ### Market Maker Rebates

Note: Values shown without a “%” symbol are expressed in basis points (bps).

MM tiers can be reached **either** by Total Maker Share or Adjusted Maker Share, whichever is highest. The Adjusted Maker Share model rewards traders for providing liquidity on low liquidity markets. Each market has a multiplier (as presented below), which is used to calculate the Adjusted Volume.
Adjusted maker share is calculated by dividing a user's total adjusted maker volume from that month by the total adjusted maker volume of all users across all markets in each instrument category. MMs can also unlock MM tiers through their Total Maker Share, which does not factor in market multipliers. For Total Maker Share, we take the user’s total maker volume and divide it by the total maker volume of all users across all markets in each instrument category without applying any multipliers. #### MM Tier Calculation and Payout On the last day of every month, we will calculate the Total Maker Share and Adjusted Maker Share for each user and choose the **highest** between the two to determine their MM tier / fees for the month. Rebates will be credited manually to the user’s Backpack account the following month. In the meantime, users participating in the MM program will have their fee tier set to VIP2, which has 0 maker fees. *** ### Market Maker Monthly Rewards Backpack has allocated 5% of the company’s equity as of December 2023 to reward market makers that provide liquidity on the exchange. 2.5% has been allocated to spot and futures each, which nets to \~$195,000 in monthly rewards for each instrument (using our latest valuation of $120m as of February 2024). Spot rewards started on January 1 2024 and ended on December 31 2024. The futures program starts on February 1, 2025. #### Monthly Futures Reward Distribution
**Pair Categories** * **Primary Pairs**: BTC-PERP, ETH-PERP, and SOL-PERP * **Secondary Pairs**: All other futures pairs **Primary Pairs Distribution** The total primary reward pool is split equally among BTC-PERP, ETH-PERP, and SOL-PERP. Each primary pair receives 0.03472% of the total reward pool. **Secondary Pairs Distribution** The reward for secondary pairs is distributed based on the number of days each pair was active during the month (the timestamp of first trade is considered the start). The formula is: ***Individual Pair Reward % = Pair's Active Days / Sum of All Pairs' Active Days*** **Example** Let's say we have three secondary pairs in a 30-day month: * Pair A: Active for 30 days * Pair B: Active for 30 days * Pair C: Active for 10 days Total active days across all pairs = ***70 days (30 + 30 + 10)*** Therefore: * Pair A receives: (30/70) = 37.5% of secondary rewards * Pair B receives: (30/70) = 37.5% of secondary rewards * Pair C receives: (10/70) = 25% of secondary rewards #### Scoring System For Monthly Rewards To determine a user’s share of the reward pool for a given pair, we will look at their Blended Score, which takes into account their Volume Score and Liquidity Score. **For each market:** * **Volume Score** = your maker volume / volume of all MMs in the program * **Liquidity Score** = Your Liquidity Metric / Sum of all MMs Liquidity Metric * Liquidity Metric = Average Size / (Average Spread) \* Uptime Score * Uptime Score = Active Snapshots / Total Snapshots * **Blended Score** = (Volume Score \* Volume Weight) + (Liquidity Score \* Liquidity Weight) * **Reward** = Blended Score \* Monthly Reward Pool Volume Score has a weight of 0.8 and Liquidity Score 0.2. #### Optional Liquidity KPIs Market Makers (MMs) who maintain liquidity KPIs for at least 80% of the month will receive a 30% boost to both their Volume Score and Liquidity Score on the relevant pairs where they hit the KPI. This boost is taken from the allocation that would otherwise go to MMs who fall below the 80% uptime threshold. See optional liquidity KPIs below:
The One-Sided Depth values shown above represent the minimum liquidity required on each side of the order book (bid and ask) independently. For example, a $10,000 depth requirement means market makers must maintain at least $10,000 worth of orders on both the buy side and the sell side separately, within the specified spread level. Note that the KPIs may change as volumes and liquidity on the exchange evolve. If a market doesn't have liquidity KPIs specified for it, the 30% rewards boost is not applicable for that market. #### MM Reward Calculation Example The example below illustrates how rewards are calculated for a single market.‍
### Further Information * All new MMs will enjoy MM5 maker fees for their first month; thereafter, fees will be determined based on the user’s market share and volumes at the end of the fee holiday period. **Backpack Exchange does not, and will not entertain special fee deals with any MM. Fee schedules with all MMs are the same.** * MMs participating in this program are not able to participate in other programs. * MMs must receive at least 1% of the total allocation in order to be eligible for equity rewards in a given month. Additionally, MMs with an average size lower than $2000 or a volume score lower than 1.5% won't be eligible for rewards on a given market. * For the liquidity score calculation, we will only consider orders placed within 100bps from the mid. * For a limited time, each MM has the option to have Backpack buy back the awarded equity every month at the previous fundraise valuation ($120m as of February 2024). If a market maker wishes to receive their month’s reward in cash, the market maker must let Backpack know before the end of the following month. For example, a MM has until November 30 to state how they want to receive their October rewards. Previous equity rewards that have not been claimed in cash cannot be converted. * MMs must comply with Backpack Exchange's User Agreement and all applicable policies and procedures. * Backpack Exchange reserves the right to waive certain KPI requirements for a certain period of time in its sole discretion. * Backpack Exchange reserves the right to modify this program any time when appropriate. # Liquidation ### Overview Liquidation is the process by which the risk engine reduces or closes positions when an account's margin falls below maintenance requirements. Backpack employs a multi-tiered liquidation system designed to: 1. Minimize user losses through gradual position reduction 2. Maintain orderbook execution where possible 3. Prevent systemic risk through backstop mechanisms 4. Ensure platform solvency in extreme conditions Account margin, assets, and positions are valued against mark price to prevent manipulation via last-trade price spikes. Liquidations execute on-book or via other waterfall mechanisms. *** ### Liquidation Trigger #### When Liquidation Occurs Liquidation initiates when the **Maintenance Margin Ratio (MMR) reaches 100%**. ``` MMR = Account MMF / Account Margin Fraction ``` Where: * Account Margin Fraction = Net Equity / Total Exposure Notional * Account MMF = Σ(Notional Position Size × Position MMF) / Total Exposure Notional #### What Happens at Trigger When MMR hits 100%, the liquidation engine executes the following: 1. **Cancel all open orders** — Frees locked margin 2. **Repay borrows and unwind positions** — Borrow repayment and position unwinding happen in parallel #### Estimated vs. Actual Liquidation Price The estimated liquidation price displayed in the UI is a **reference only**. It assumes: * No changes to other positions * No changes to collateral composition * No funding payments or interest accrual * Static mark prices on other assets **Actual liquidation occurs when MMR ≥ 100%**, which accounts for your total subaccount state. For accounts with complex exposure (multiple positions, non-USD collateral, active borrows), the system may not display an accurate estimated liquidation price. *** ### The Liquidation Waterfall Backpack uses a three-stage liquidation waterfall. Each stage activates only if the previous stage cannot fully restore margin health. ``` ┌─────────────────────────────────────────────────────────────────┐ │ LIQUIDATION WATERFALL │ ├─────────────────────────────────────────────────────────────────┤ │ │ │ Stage 1: ORDERBOOK LIQUIDATION │ │ ├── Reduce-only orders placed on public orderbook │ │ ├── Executes against available market liquidity │ │ ├── Price bands prevent execution at extreme prices │ │ └── Gradual reduction until margin health restored │ │ │ │ │ ▼ │ │ Stage 2: BACKSTOP LIQUIDITY PROVIDERS (BLPs) │ │ ├── Activates when: ACMF breached │ │ ├── Positions transfer to BLP participants │ │ ├── Portion of remaining equity paid to backstop fund │ │ └── BLPs assume position management │ │ │ │ │ ▼ │ │ Stage 3: AUTO-DELEVERAGING (ADL) │ │ ├── Activates when: ACMF breached AND no BLP capacity │ │ ├── Profitable counterparties' positions partially closed │ │ ├── No account or user restrictions after priority scoring │ │ └── Last resort to maintain system solvency │ │ │ └─────────────────────────────────────────────────────────────────┘ ``` > **Price Display Note:** Backstop and ADL transactions are executed off-book (outside the public orderbook). As a result, these execution prices are not reflected in K-line charts. #### Stage 1: Orderbook Liquidation **Trigger:** MMR ≥ 100% **Mechanism:** * Liquidation engine places **reduce-only market orders** on the public orderbook * Orders execute against resting liquidity at prevailing market prices * Liquidation runs in a loop (1 second per tick, 50% probability each tick), reducing 10% of the position per iteration, capped by liquidation capacity * Process continues until MMR < 100% **Protections:** * **Price bands** prevent execution at manipulated prices * **Gradual reduction** minimizes market impact * Liquidations are visible on the public orderbook and trade feed **Partial Liquidation:** The system liquidates only the minimum amount necessary to restore margin health. This means: * You may retain a reduced position after liquidation * Remaining equity stays in your account * If price continues moving against you, additional liquidations may occur #### Stage 2: Backstop Liquidity Providers (BLPs) **Trigger:** Account Margin Fraction falls below **Auto-Close Margin Fraction (ACMF)** **Auto-Close Margin Fraction Calculation:** ``` ACMF = max(Account MMF / ACMF Divisor, Account MMF - ACMF Offset) ``` The ACMF is always less than the MMF, creating a buffer zone between maintenance margin breach and BLP handoff. **Mechanism:** 1. Remaining position is transferred to Backstop Liquidity Providers 2. A portion of remaining account equity is paid to the backstop liquidity fund 3. BLPs assume management of the position 4. Account margin is zeroed (account remains active for trading) or reduced to safe margin levels **BLP Requirements:** * Minimum balance requirements on platform * Commitment to absorb specified liquidation volumes * May be required to meet market making standards #### Stage 3: Auto-Deleveraging (ADL) See [Auto-Deleveraging (ADL)](#auto-deleveraging-adl) section for complete details. *** ### Liquidation Fees **Rate:** 1% per fill **Scope:** * System-triggered perpetual futures liquidations * System-triggered borrow/spot-margin liquidations **Calculation:** * Fee is applied to the filled notional amount of each liquidation order * Deducted from liquidation proceeds (not charged separately) **Exclusions:** * User-initiated position closes (regular trading fees apply) * Manual repayment of borrows *** ### Liquidation Process by Product #### Perpetual Futures Liquidation 1. Open orders cancelled 2. Available balance used to repay borrows 3. Collateral sold to cover remaining borrow liability 4. Position reduced via orderbook 5. If ACMF breached → BLP takeover 6. If BLP capacity exceeded → ADL **Settlement:** Liquidation proceeds settle in USDC. PnL (positive or negative) is realized immediately. #### Spot Margin Liquidation 1. Open orders cancelled 2. Available balance used to repay borrows 3. Collateral sold to cover remaining borrow liability 4. If collateral insufficient → additional asset liquidation **Settlement:** Borrowed assets are repaid to the lending pool. Remaining collateral (if any) stays in account. #### Borrow Position Liquidation When a borrow position specifically triggers liquidation: 1. System sells collateral to repay borrow 2. Liquidation fee applied to sold amount 3. Remaining collateral returned to account **100% Utilization Scenario:** If the lending pool is fully utilized and collateral cannot be redeemed, ADL mechanisms activate. *** ### Auto-Deleveraging (ADL) #### Overview Auto-Deleveraging is an **emergency mechanism** that activates when standard liquidation processes cannot complete. ADL ensures: 1. Lenders receive the value of their lent assets 2. The platform remains solvent 3. Losses do not socialize beyond direct counterparties ADL is a **last resort** used only when: * Prices move faster than liquidation can execute * Orderbook liquidity is insufficient * BLP capacity is exceeded * Market utilization prevents lend redemption > **Price Display Note:** ADL transactions are executed directly in the backend, bypassing the public orderbook. These execution prices are not reflected in K-line charts. #### ADL for Futures Positions **Trigger Conditions:** Account margin fraction falls below ACMF AND no BLP capacity available This typically occurs when: * Liquidating account's position cannot be closed via orderbook * BLP capacity is insufficient * Remaining equity cannot cover losses at available prices **Counterparty Selection:** ADL does not randomly select counterparties. The system ranks traders with opposing positions by their **ADL Priority Score**: ``` ADL Priority = f(Unrealized PnL, Effective Leverage) ``` Traders with the highest combination of: 1. **Profit** on the position (higher unrealized PnL = higher priority) 2. **Leverage** on the position (higher leverage = higher priority) …are selected first for ADL. **No Account Restrictions:** ADL has no account or user restrictions. After all priority scoring (first and second pass), there is a complete matching of longs and shorts regardless of account. **Lower priority:** Basis trades and delta-neutral positions are deprioritized and will only be ADL'd when other positions are insufficient. **Execution Process:** 1. System identifies the liquidating position's size and direction 2. Counterparties are ranked by ADL Priority 3. Highest-priority counterparty's position is partially closed 4. Close price = bankruptcy price of the liquidated account 5. Process repeats until liquidating position is fully absorbed **Example:** ``` Liquidating Account: - Long 10 BTC-PERP - Bankruptcy price: $50,000 - Cannot close via orderbook ADL Queue (Short BTC-PERP holders ranked by priority): 1. Trader A: Short 5 BTC, +$20,000 PnL, 10x leverage 2. Trader B: Short 8 BTC, +$15,000 PnL, 5x leverage 3. Trader C: Short 3 BTC, +$5,000 PnL, 2x leverage Execution: - Trader A: 5 BTC of short closed at $50,000 - Trader B: 5 BTC of short closed at $50,000 - Liquidation complete ``` **Notification:** * ADL fills appear in your fill history with origin `ADL_AUTOCLOSE` * WebSocket order updates include `O: "ADL_AUTOCLOSE"` #### ADL for Borrow/Lend Positions ADL in the borrow/lend system protects lenders when borrowers default or when market conditions prevent normal liquidation. **Scenario 1: Borrower Default** When a borrower's account goes bankrupt without holding the borrowed asset: **Example:** ``` Initial State: - Borrower borrows 1 BTC from Lender - Borrower sells the BTC, holds USDC - BTC price rises significantly - Borrower's collateral insufficient to cover borrow Liquidation: - Borrower's account goes bankrupt - BTC trading at $100,000 - Borrower no longer has BTC to return Resolution: - System liquidates Borrower's remaining assets - Lender receives $100,000 USDC (notional value) - Lender receives value, but in USD not BTC - Loan is closed ``` **Key Principle:** The primary mandate is ensuring the Lender receives the value of their lent assets—either in the original token or in notional USD terms at liquidation time. **Scenario 2: 100% Utilization** When lending pool utilization reaches 100%, lent assets cannot be redeemed. If a lender with lent collateral faces liquidation: **Process:** 1. Lender has positions backed by lent collateral 2. Lender's positions move against them → liquidation triggers 3. Liquidation engine attempts to redeem lent assets 4. Pool at 100% utilization → redemption blocked 5. ADL activates **ADL Resolution:** 6. System identifies borrowers with available collateral 7. Notional USDC (≤ original lend value) transfers: Borrower → Lender 8. Lender's loan position closes 9. Lender now has USDC to cover liquidation 10. Borrower's loan is closed; collateral may have converted **Borrower Impact:** * Borrower's loan is forcibly closed * Borrower's collateral may convert to a different asset * Borrower's total account value remains unchanged * No loss to borrower—only asset composition changes *** ### Liquidation in the API #### Fill Types The `/fills` endpoint returns all fills including system orders. Use the `fillType` parameter to filter: | fillType | Description | | ---------------------- | ------------------------------------ | | `User` | Regular user orders only | | `BookLiquidation` | Orderbook liquidation fills | | `Adl` | Auto-deleveraging fills | | `Backstop` | Backstop Liquidity Provider fills | | `Liquidation` | All liquidation types | | `AllLiquidation` | All liquidation types combined | | `CollateralConversion` | Collateral conversion to settle debt | #### Order Update Stream Origins WebSocket `account.orderUpdate` stream includes an `O` field indicating the origin: | Origin | Description | | ----------------------------- | ------------------------------------ | | `USER` | User-initiated order | | `LIQUIDATION_AUTOCLOSE` | Liquidation engine closed position | | `ADL_AUTOCLOSE` | Auto-deleveraging event | | `COLLATERAL_CONVERSION` | Collateral conversion to settle debt | | `SETTLEMENT_AUTOCLOSE` | Settlement of dated market position | | `BACKSTOP_LIQUIDITY_PROVIDER` | BLP facilitated the liquidation | #### Querying Liquidation Price Query estimated liquidation price via REST: ``` GET /api/v1/position?symbol=BTC_USDC_PERP ``` Returns `estLiquidationPrice` for the specified position. **Note:** The `l` field in the position update WebSocket stream is deprecated and returns `0`. Use the REST endpoint for liquidation price queries. #### Settlement History Query settlement operations including liquidations: ``` GET /wapi/v1/history/settlement ``` Filter by source: * `BackstopLiquidation` * `TradingFeesSystem` * `RealizePnl` *** ### Viewing Liquidation History #### In the UI **Futures Liquidations:** * Navigate to: Portfolio → Futures → Liquidations * Direct link: **Borrow/Lend Liquidations:** * Navigate to: Portfolio → Lending → Liquidations * Direct link: #### Via API Use the fill history endpoint with `fillType` filter: ``` GET /wapi/v1/history/fills?fillType=AllLiquidation ``` # Taker Speed Bump Backpack applies a 100ms speed bump to all taker orders across spot and futures markets. This reinforces top-of-book liquidity. It protects resting orders from latency-driven adverse selection. It also supports deeper books and better execution for all participants. ### How it works * The 100ms speed bump applies to any order submitted without the `postOnly` flag. This includes market orders and limit orders, including IOC orders, even if the order ultimately rests on the book. * Orders with `postOnly` enabled are not subject to the speed bump. * Order cancellations are exempt. They are processed without delay. * The speed bump applies uniformly to all participants Attempting to circumvent the speed bump violates the Terms of Service. # Borrow & Lend * ​[Lending](/borrow-and-lend/lending)​ * ​[Borrowing](/borrow-and-lend/borrowing)​ * ​[Utilization](/borrow-and-lend/utilization-and-interest-rates) [and Interest Rates](https://app.gitbook.com/o/1pzK7I96ua1kPK2SCiPg/s/3kiM6CAFBZoTCJcZ8X7k/borrow-and-lend/utilization-and-interest-rates)​ * ​[Liquidations](/borrow-and-lend/risks)​ *** Backpack features an omnichain money market where users can lend and borrow a variety of assets. Users can deposit from any chain to lend in the unified pool, or borrow against their collateral and withdraw to any supported network - all without bridging. This omnichain money market is a core component of Backpack’s margin system, allowing users to trade with the highest level of capital efficiency. Lenders can earn yield on their assets by supplying liquidity into the lending pool, which can be borrowed by other users for the following purposes: 1. Spot margin trading 2. USDC settlements for perpetual futures trading 3. Withdraw off the exchange Unlike most centralized exchanges, interest rates on Backpack are determined by a transparent Utilization Rate model, which users can view at any time on the Lend page. The utilization rate represents the proportion of lent assets that are currently borrowed for a given market. Higher utilization rates indicate stronger borrowing demand, resulting in higher interest rates. Interest rates are calculated and paid every hour. To protect lenders, all borrows are subject to Backpack’s margin requirements and real time liquidation system. This means that no user can borrow without meeting the necessary collateral requirements, and in the event that their margin fraction drops below the necessary levels, Backpack will immediately begin liquidating their position. # Lending You can start lending on Backpack in two ways. ## **Method # 1 - Manual Lend** Lend your assets manually through the **Lend page** or the **Lend modal**. Interest generated from your lends is automatically added to your balance and compounded. ## **Method # 2 - Auto Lend** Auto Lend is a subaccount setting that automatically lends all available assets sitting in a subaccount into the lending pool. When Auto Lend mode is enabled, you can seamlessly start lending by depositing assets to your subaccount or buying an asset that is eligible to be lent out. {% embed url="" %} ## **Redeeming** To provide the most seamless and flexible user experience, all lends are redeemed automatically to the maximum extent possible (see note below) for the user, regardless of whether Auto Lend is enabled or disabled. You can redeem your assets in the following ways: 1. **Spot Trading** - lends will be automatically redeemed to cover any spot trades. For example, if you are lending USDC and wants to buy BTC, your USDC will be redeemed automatically from the lending pool in order to cover the trade. 2. **Withdrawing** - you can also simply withdraw their lent assets without having to manually redeem them. At the time of withdrawal, Backpack will redeem their lends from the lending pool and process the withdrawal. 3. **Manual Redeem** - if you no longer wants to lend, but don't need to trade or withdraw the funds, you can simply manually redeem their assets from their Lend page or the Lend modal (only if Auto Lend isn’t enabled). **Important to note:** you can redeem your lends as long as the utilization rate for that given asset allows it. In order to prevent the utilization rate from reaching 100%, Backpack implements a throttling threshold, in which no lends can be redeemed and no additional borrows can occur until the utilization rate dips below that threshold (via more lends or more people repaying their borrows). More detail on this further below. # Borrowing Backpack offers the ability for you to borrow assets for a variety of use cases, such as spot margin trading. Borrowed assets go into your available balance, which can be used to place orders or make withdrawals as long as the margin requirements are met. Contrary to most Borrow Lend protocols/products, you don’t need to supply assets into the lending pool before being able to borrow on Backpack. As long as there is Available Equity in the subaccount, users can start borrowing. Here are the three different ways to borrow on Backpack. {% embed url="" %} ### **Method #1 - Manual Borrow** Borrows can be originated manually through the Borrow tab on the Lend page. Note that the Auto Lend setting automatically repays all borrows in a subaccount. As a result, **manual borrowing is disabled** when Auto Lend is enabled, since any manual borrows would be immediately repaid. When Auto Lend is enabled, borrows can only be made through Spot Margin or Margin Withdrawals. ### **Method #2 - Spot Margin** You can automatically borrow through spot margin by checking the Margin checkbox on the order entry user interface and spending more than what they currently have or selling an asset that they don’t hold. For example, if you hold USDC and wants to short sell ETH spot, you can simply enable Margin and sell ETH. This will trigger a borrow for you, removing the need for making a manual borrow beforehand in order to trade with it. ### **Method #3 - Margin Withdrawal** Similarly, you can borrow against your collateral when withdrawing an asset that you currently don’t hold by checking the Margin checkbox on the withdrawal modal. The maximum withdrawable amount with borrow will be determined by your current Available Equity. ### Repayment Borrows can be repaid in the following ways: #### **Manual Repayment** If you hold the asset you owe, you can manually repay it on the Borrow tab on the trade page by clicking Repay, or through the Repay tab on the Lend page. As explained previously, note that if Auto Lend is enabled, you won’t be able to make manual repayments as any borrows will be repaid automatically if there is an available balance to do so. #### **Spot Margin** The proceeds of a spot margin trade can be used to repay borrows. For example, assuming you owe 1 SOL, if they buy 1 SOL with Margin enabled on the trade, that SOL will be automatically used to repay the outstanding borrow. #### **Depositing** When Auto Lend is enabled, all borrows are repaid automatically as soon as there is available balance in the account. That means that if you owe 1 SOL, you can simply deposit 1 SOL into the subaccount and the debt will be repaid automatically. # Utilization and Interest Rates Interest Rates on Backpack are determined by a Utilization Rate model. Each borrow lend market has its own Utilization Rate curve, which can be found on their respective Lend page. A market's Utilization Rate shows how much of its available assets are borrowed. As more assets get borrowed, interest rates rise. More specifically, **Utilization Rate = Total Borrowed / Total Lent** You can get a comprehensive view of how interest rates are generated on Backpack. At any point in time, you can monitor the following: 1. Total lending pool supply 2. Total borrowed amount 3. Current Utilization Rate 4. Projected interest rates at various Utilization Rate levels 5. And more Interest is charged every hour. The Borrow Rate is purely determined by the Utilization Rate curve. The Lend Rate is equal to **Borrow Rate \* Utilization**. The utilization rate curve is designed to reduce the risk of reaching 100% utilization, which would block redemptions from the lending pool. The system defines an optimal utilization threshold where interest rates begin to rise exponentially. This makes borrowing increasingly expensive, encouraging repayments, while also making lending more attractive due to higher yields. These market forces work together to reduce the utilization rate.
As an additional safeguard, the system includes a throttle threshold. When utilization reaches this level, all redemptions and new borrows pause. This gives new lenders time to enter the market and borrowers time to repay their debt. The pause also creates a buffer for redeeming collateral from accounts undergoing liquidation. # Risks ### Overview This page outlines the key risks for participants in Backpack's borrow/lend system. For detailed mechanics of how liquidations and ADL work, see [Liquidation](/trading/liquidation). *** ### Lender Risks #### Asset Substitution Risk (ADL) In rare, extreme scenarios, you may receive **USD value** instead of your original token. **Normal case:** Borrower is liquidated → your original token is returned to the pool. **ADL case:** Standard liquidation fails → you receive USD equivalent. This only happens when: * Prices move faster than liquidation can execute * Insufficient liquidity to repurchase the borrowed asset * Backstop Liquidity Providers cannot absorb the position **Example:** ``` You lend 1 BTC. Borrower defaults during extreme volatility. Normal: You get 1 BTC back. ADL: You get $100,000 USDC (BTC value at time of ADL). ``` You receive full value—just potentially in a different asset. > **Price Display Note:** ADL transactions are executed off-book (outside the public orderbook). As a result, these execution prices are not reflected in K-line charts. #### Redemption Risk (High Utilization) When pool utilization is high, you may not be able to redeem immediately. | Utilization | Redemption | | ----------------------- | ----------------------------------------------- | | < throttled utilization | Instant | | > throttled utilization | May be delayed | | 100% | Blocked until borrowers repay or are liquidated | **Mitigation:** Monitor utilization and redeem before anticipated high-demand periods. High utilization also means high interest rates, which incentivizes repayment. #### Interest Rate Volatility Interest rates adjust dynamically based on utilization. During high-demand periods, rates can spike significantly. While this benefits lenders, rapid rate changes can affect expected returns. *** ### Borrower Risks #### Liquidation Risk If your collateral value falls relative to your borrow, you face liquidation. See [Liquidation](/trading/liquidation) for complete mechanics. **Key points:** * Liquidation triggers when MMR reaches 100% * 1% liquidation fee applies * Partial liquidation reduces position to restore margin health #### Forced Loan Closure (ADL) Your loan may be forcibly closed if: * A lender using their lent assets as collateral faces liquidation * Pool is at 100% utilization, blocking their redemption * ADL activates to free up liquidity **Impact:** * Your loan is closed without notice * Your collateral composition may change * Your total account value remains unchanged This is not a loss—only your loan structure changes. #### Interest Accrual Interest accrues continuously and compounds. During high utilization periods, rates can spike significantly. Monitor your borrow cost and maintain sufficient collateral buffer. *** ### Risk Mitigation #### For Lenders | Risk | Mitigation | | ------------------ | ----------------------------------------------- | | Asset substitution | Accept that ADL may return USD in extreme cases | | Redemption delays | Monitor utilization; redeem before peaks | | Rate volatility | Understand rates are dynamic | #### For Borrowers | Risk | Mitigation | | --------------- | -------------------------------------------- | | Liquidation | Maintain margin buffer well above MMR | | Forced closure | Understand ADL may close your loan | | Interest spikes | Monitor rates; repay during high utilization | *** ### Further Reading * [Liquidation](/trading/liquidation) — Complete liquidation mechanics, ADL details, and API integration * [Utilization and Interest Rates](/borrow-and-lend/utilization-and-interest-rates) — Rate calculation model