Introduction to the Forced Repayment Mechanism

Introduction to the Forced Repayment Mechanism

Should you use the margin and / or borrowing services (including through any products by which you may receive loans, such as “Trade” or “Grow” products) on the OKX Platform, please take note of the below:

1. Auto-crypto conversion for users having a negative balance in a cryptocurrency (in multi-currency or portfolio margin account modes where a cross-margin position causes unrealized loss) (“User Based FRP”): When you have an unrealized loss in a futures position, and if auto-borrow mode is disabled, you are deemed to have a "negative balance" for the relevant cryptocurrency, even if you have other types of cryptocurrency in your account. In such a scenario, the Forced Repayment Mechanism may be triggered, resulting in the sale of assets in your account to fund purchases of the relevant cryptocurrency which is in negative balance, so as to reduce that negative balance. Whether or not the Forced Repayment Mechanism will be triggered depends on various factors, including in particular whether your negative balance exceeds the interest-free overdraft quota granted to you by OKX.

2. Auto-crypto conversion triggered by borrowing limits for a particular cryptocurrency being exceeded (in all account modes) (“Platform Based FRP”): Each cryptocurrency on OKX has a borrowing limit, which is set with reference to the amount of that cryptocurrency being put up for borrowing by other users in the OKX Simple Earn product, and will therefore fluctuate from time to time. When the total amount of borrowing for a particular cryptocurrency exceeds the Platform limit, the Forced Repayment Mechanism may be triggered, resulting in the sale of assets in your account to fund purchases of the relevant cryptocurrency which has exceeded the Platform limit in order to reduce your borrowing of that cryptocurrency. This can occur whether or not you have auto-borrow mode on and irrespective of the balance of your position in that cryptocurrency.

In using OKX’s services, you agree that you may be subject to the Forced Repayment Mechanism in the aforesaid or analogous situations. It is described in further detail below.

User Based FRP

1. When auto-borrow mode is disabled, and an unrealized loss in a futures position results in a user having a negative balance for a cryptocurrency, the following (non-exhaustive) scenarios may occur:

(1) USDT may be used to purchase the crypto which is in negative balance in order to reduce such balance;

(2) Other cryptocurrency may also be sold for USDT, which will then be used to buy back the cryptocurrency which is in negative balance. USDT is used as an intermediate conversion asset due to its high liquidity and low slippage. When selecting the cryptocurrency to be sold, assets with the least discount (for reference only, please refer to the discount rates table here) are typically prioritized for sale, in an effort to minimise the impact on the user's overall account equity. Assets with a discount rate of 0 will not be sold. Among assets with identical discount rates, assets with better liquidity are prioritized. Liquidity rankings are dynamically adjusted based on OKX Platform liquidity, and are not publicly disclosed.

Please note that a negative balance can occur in your Trading Account, triggering the Forced Repayment Mechanism, even if you have that particular cryptocurrency in your Funding Account.

Example: User has BTC liability (resulting in a negative balance in BTC) but still has ETH, DOT, BSV, and CVC in their account. ETH has a discount rate of 1 (which means it is not discounted at all), DOT and BSV have discount rates of 0.9, and CVC has a discount rate of 0. When determining which asset to sell, CVC is excluded from consideration (due to its discount rate being 0). ETH will be the first to be sold due to its discount rate being 1. If that is still insufficient to reduce the BTC liability to acceptable levels, OKX will then turn to the remaining two cryptocurrencies (DOT and BSV). If DOT has better liquidity than BSV, DOT will be sold first. Each of those cryptocurrencies will be sold for USDT, and the USDT will then be converted to BTC, so as to reduce User’s liability in BTC to sufficient levels.

Platform Based FRP

OKX imposes a dynamic Platform borrowing limit for each cryptocurrency. OKX may carry out any of the following actions whenever the Platform borrowing limit for a particular cryptocurrency (“Overborrowed Crypto”) is exceeded:

1. OKX may not permit any new orders to be placed which would result in an increase of the total borrowed amount of the Overborrowed Crypto;

2. OKX may cancel pending orders, which were placed before the Platform borrowing limit was exceeded, where the fulfilment of such order would result in an increase of the total borrowed amount of the Overborrowed Crypto;

3. In the event that a user has any positions in the denomination of the Overborrowed Crypto, the Forced Repayment Mechanism may be triggered, resulting in the sale of assets in your account to fund purchases of the Overborrowed Crypto in order to reduce borrowing. Should this become necessary, OKX will endeavour to do so in an orderly and proportionate manner, with the Mechanism triggered tier-by-tier for users with the largest borrowings (by reference to their top positions) in the Overborrowed Crypto, resulting in a conversion and repayment of all or a portion of the borrowing. Similar to the method adopted in User Based FRP:

(1) USDT may be used to purchase the Overborrowed Crypto in order to reduce such balance;

(2) Other cryptocurrency may also be sold for USDT, which will then be used to buy back the cryptocurrency which is in negative balance. USDT is used as an intermediate conversion asset due to its high liquidity and low slippage. When selecting the cryptocurrency to be sold, assets with the least discount (for reference only, please refer to the discount rates table here) are typically prioritized for sale, in an effort to minimise the impact on the user's overall account equity. Assets with a discount rate of 0 will not be sold. Among assets with identical discount rates, assets with better liquidity are prioritized. Liquidity rankings are dynamically adjusted based on OKX Platform liquidity, and are not publicly disclosed;

(3) However, in (a) single currency account mode; or (b) isolated margin positions (in all account modes), OKX may instead of carrying out an automatic crypto conversion, close out positions to reduce the negative balance.

Please note that that Forced Repayment can occur in your Trading Account even if other accounts (e.g. your Funding or Grow accounts) have the Overborrowed Crypto in them. Similarly, Forced Repayment can occur in relation to your Grow account even if other accounts (e.g. your Trading or Funding accounts) or collateral for other orders contain the Overborrowed Crypto in them.

Example: User in Single Currency Account Mode has a 200,000 USDT isolated margin liability. Platform limit for USDT liability has been exceeded to a level that the Forced Repayment Mechanism must be triggered. OKX will sell a part of the 200,000 USDT isolated margin position (i.e. to close it). This will reduce the liability. OKX will carry out such sales in an orderly and proportionate manner as between users, in order to bring USDT liability across the Platform to an acceptable level.