Clawbacks occur when significant market movements force exchanges to liquidate leveraged positions, and the exchanges can’t cover losses. As cryptocurrency exchanges must settle all debts on-platform, they initiate clawbacks and requisition funds from net positive accounts to cover negative positions.
FTX views this as fundamentally wrong and has developed a 3-tier Liquidation Engine to prevent clawbacks from ever occurring.
Central to this process is the Backstop Liquidity Pool. When markets move enough to trigger liquidations, the Backstop Liquidity Pool internalizes negative positions and instantly injects liquidity into the market. Simulations have shown that the Backstop Liquidity Pool often gains value after large market movements in many scenarios. These gains are then socialized and shared amongst all FTX Token holders.