Exchange Failure Risk

Multipli employs derivative positions to hedge the delta of its protocol-backed assets. These derivatives are traded on centralised finance (CeFi) exchanges like Binance, Deribit, and OKX, and CFD brokers like Admiral, IG Group, Exness and Etorro. However, in the event of an exchange failure, such as FTX, Multipli must navigate the repercussions, known as "Exchange Failure Risk."

It's crucial to note that Multipli never deposits protocol backing assets to exchanges; instead, they reside with "Off-Exchange Settlement" providers and Multipli also makes sure to deposit protocol backing assets only in highly regulated and secure CFD brokers. This strategic choice minimises exposure to exchange failures.

What happens if an exchange fails?

Multipli maintains full control and ownership of assets through Off-Exchange Settlement providers, with no collateral ever deposited with any exchange. This limits exposure to any one exchange's idiosyncratic events to the outstanding Profit and Loss (PnL) between settlement cycles of Off-Exchange Settlement providers. For example, Ceffu runs a daily settlement cycle. In the event of an exchange failure, Multipli would delegate collateral to another exchange and hedge the outstanding delta previously covered by the failed exchange. Any derivatives positions with the failed exchange are considered closed, with Multipli holding no further obligations to the exchange estate.

Preserving capital is paramount for Multipli. In extreme circumstances, Multipli will use its best efforts to bring back peg via insurance.

Multipli remains agnostic to each provider at every step of its workflows and diversifies risk and mitigates the potential impact of exchange failure by utilising multiple exchanges. Additionally, Multipli actively integrates with new liquidity sources to limit exposure to each source. By continuously monitoring the ecosystem, proactively engaging with investors, advisors, and industry peers, we can effectively mitigate exchange exposure risks if and when they emerge.