Liquidity Support Program (LSP)

LSP is a recently implemented stage within Deribit's existing liquidation waterfall. It is designed to contain risk at platform level, by providing an additional layer of liquidity for less liquid products or in volatile conditions, and by resolving distressed positions outside of the public order book. Under Deribit's standard liquidation waterfall, an account with collateral insufficient to cover its positions first enters a reduce-only mode and then moves to standard liquidation via the order book. LSP introduces an additional buffer to reduce the likelihood that unsuccessful market liquidations escalate, reducing reliance on later stages of the waterfall such as auto-deleveraging, potential draws from the insurance fund, or other platform-wide measures.

LSP refers to a program of pre-selected external trading firms who agree in advance to absorb certain positions from distressed accounts directly. These firms, known as “LSP participants”, commit capital to designated accounts and in return receive compensation for taking on the associated risk. Under the program, Deribit is able to allocate the distressed positions to liquidity support providers programmatically and in an orderly manner.

When an account reaches close-out margin (a new threshold representing a fraction of the maintenance margin requirement), LSP-eligible instruments are reduced by transferring part or all of the positions to one or more LSP participants rather than being forced onto the market. Where a distressed account holds multiple eligible positions, Deribit prioritises the instrument with the largest negative unrealised PnL first, before working through the remaining positions in descending order. Each position is transferred to one or more providers at the instrument's mark price, adjusted by a small spread in the provider's favour. Fees associated with the transfer may be charged against the distressed account.

If a distressed account remains in breach of its margin requirements after the fund capacity of the LSP is exhausted, any remaining positions that would still need to be transferred will become subject to the ADL mechanism.

LSP only applies to linear (USDC-settled) perpetuals. The program will not include inverse perpetuals (e.g. BTC_USD, ETH_USD), nor options, dated futures and spot trades.

Within linear perpetuals, LSP coverage depends on the account's margin model:

At this time, Pre-IPO instruments are not eligible for LSP coverage. Pre-IPO perps will instead be subject directly to the ADL mechanism once close-out margin is 100% utilised in the relevant account, and the standard liquidation waterfall applies.