The weekend of October 11th 2025 stands out for crypto traders due to significant volatility. As Bitcoin, Ethereum and other leading digital assets experienced notable price swings, exchanges worldwide saw a sharp increase in liquidations and Auto-Deleveraging (ADL) events. Social media reflected widespread discussions of closed positions, margin calls, and a general sense of unease among market participants. The scale of the liquidations highlighted how quickly market sentiment can change, and underscored the importance of robust risk management mechanisms for both traders and exchanges.
How Do Exchanges Typically Manage Liquidations
When markets move rapidly, exchanges generally employ a range of strategies to protect themselves and their users from cascading losses:
- Socialised Losses: An insurance fund absorbs the losses from liquidated accounts. If this fund is depleted, even profitable traders may face a reduction in their returns, as observed across several platforms during the October 2025 weekend.
- ADL (Auto-Deleveraging): Insurance funds serve as the primary line of defence. Once these are exhausted, positions may be closed against other traders, often determined by leverage and unrealised PnL. ADL actions were particularly noticeable during the recent market movements.
- Mark Price Cap: Exchanges may limit how far prices can move in a mark update, ensuring no account loses more than its deposited equity. This technique prevents accounts from falling into negative territory and helps insulate the exchange from systemic risk.
Nekuti’s Solution: ADL + Mark Price Cap
In response to the challenging conditions of October, Nekuti’s Matching Engine offers a considered blend of ADL and Mark Price Cap strategies. As the prices of instruments rise or fall, Nekuti continuously scans all accounts, identifying the first that would reach bankruptcy. Rather than allowing uncontrolled movements, the engine “caps” the shift at this threshold, ensuring no account enters negative equity and helping to maintain platform stability even during challenging market periods.
Independent Mark Price Sourcing: Enhancing Protection in Stressful Markets
A particular strength of Nekuti’s engine is its ability to incorporate Mark Price data from independent external sources, rather than relying solely on its own order books when assessing collateralisation exposure. This approach enables Nekuti to reference unbiased market prices, reducing the risk of manipulation or distortions due to illiquidity that may arise during times of extreme volatility.
If, during the weekend of October 11th, any exchange had relied exclusively on its internal data to set mark prices, traders could have faced unnecessary liquidations caused by local order book anomalies or insufficient liquidity. Nekuti’s method helps mitigate such risks, offering greater transparency and fairness for all market participants, even in turbulent conditions.
Why Not Cap Each Instrument Separately?
This is a key differentiator for Nekuti. Rather than adjusting prices for individual instruments one by one, Nekuti moves mark prices together across all instruments. For traders using hedging strategies, such as balancing BTC with ETH, this unified approach provides significant benefits. If prices were capped sequentially, accounts with correlated positions might be unfairly liquidated, even when they are structurally sound. By moving all prices together, Nekuti preserves the protective effect of portfolio correlation, allowing traders to manage their positions with increased confidence.
The Maths Behind the Cap
Nekuti’s engine operates with a clear calculation: for each account, it determines how much of a proposed price movement can be absorbed before bankruptcy—the “distance to bankruptcy”. The system then scales back the move for all instruments by the lowest such ratio, ensuring that only accounts genuinely at risk are liquidated, while others remain protected.
- If an account’s ratio is between 0 and 1, it will go bankrupt with the full price movement.
- The smallest ratio determines the limit for the entire move across all marks.
- This method ensures fairness, liquidating only those accounts that truly require it.
Handling Inverse and Linear Futures
Extra care is required with inverse futures, where the traded asset also serves as margin, for example, Bitcoin-margined Bitcoin contracts. The mathematics of liquidation in this context is less straightforward, but Nekuti handles it by transforming prices, allowing the same protective logic to apply and avoiding unintended bankruptcies.
Key Takeaways
- Nekuti’s mark price cap mechanism limits systemic risk, ensuring no account falls below zero equity during liquidations, even in busy weekends such as October 2025.
- By moving all mark prices together, Nekuti maintains portfolio correlations, supporting a fairer and safer liquidation process for traders.
- The engine’s mathematical approach adapts to both linear and inverse futures, protecting a range of portfolios from unnecessary harm.
- Nekuti’s independent mark price sourcing supports fairer collateral evaluation, helping to reduce the impact of exchange-specific anomalies in volatile markets.
In summary, Nekuti’s approach proved valuable during the October 2025 cryptocurrency market movements. By capping price changes in an intelligent manner and taking portfolio effects into account, Nekuti delivers both fairness and stability, even when markets experience rapid changes in sentiment.
For more insight, continue reading: Mark Price Cap: Preserving Portfolio Correlations During Liquidations
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