What happened
After a security incident at Binance, the exchange has been publishing recovery updates. In its 2 November proof-completion update, Binance said holders of ten named tokens, including Bitcoin, could independently verify backing of at least 1:1 for a snapshot taken at 00:00 UTC on 31 October.
That answers one question: is a customer's Bitcoin backed at a dated moment. According to CryptoSlate, a futures hedge faces a separate test. Binance's futures rules allow Auto-Deleveraging, known as ADL, to reduce a profitable short position that was offsetting a holding.
Binance had also disclosed on 31 October that some futures insurance reserves helped replenish assets stolen in the incident. It said it released only the excess above its required coverage level, and that the remaining funds exceeded that requirement. CryptoSlate notes that this disclosure alone establishes neither a reserve shortfall nor a measurable increase in the chance of ADL.
Why a winning position can still be cut
Binance describes its Futures Insurance Funds as its own reserves, outside the proof-of-reserves view that users can check. These funds support the handling of bankrupt futures positions and reduce the need to close opposing traders' positions.
The futures insurance FAQ, as CryptoSlate reads it, describes several pools assigned to different contract categories, and Binance can change the allocations. A single exchange-wide reserve figure therefore cannot describe the protection available to every Bitcoin contract.
There is also a capacity limit. Maximum Takeover Capacity caps the face value of bankrupt positions a fund can absorb at a time. It is a multiple of the fund's balance, and Binance keeps the multiplier confidential. ADL can be engaged when that capacity is reached, or when unrealised losses on positions the fund has taken on exceed the relevant available balance.
Under the ADL priority rules, profitability and leverage affect where a position sits in the queue. CryptoSlate's summary is that a position can be winning on price and still be selected for reduction.
What it means for the reader
CryptoSlate offers a hypothetical. A trader holds 1 BTC and a linear futures short of 1 BTC, and the short has become profitable after a price decline. If ADL cuts the short to 0.5 BTC, only half the holding remains offset.
If Bitcoin then falls by an assumed $10,000 per BTC, the remaining combined position loses $5,000 on that further move. CryptoSlate stresses the assumptions: spot and futures move together, quantities stay fixed, and no replacement hedge is added. It also leaves out fees, funding, basis differences, taxes and collateral changes.
The practical point, on the source's reasoning, is that a position can be reduced under the exchange's rules even when it is winning on price. If you hedge on futures, it is worth checking your open size rather than assuming it is unchanged.
Where StratoSig fits
StratoSig signals are information and education only. On every StratoSig signal the stop is set before you are in the trade, so the loss you are prepared to take on a move against you is a number you have chosen in advance. That gives you a known distance to the stop to size from, whatever venue you use.
The cost of a position is more than its price move, and the rules of the exchange are part of the risk.
Questions
What is Auto-Deleveraging on Binance futures? According to CryptoSlate, it is a mechanism under which Binance's futures rules can reduce an opposing profitable position when the insurance fund cannot accept a bankrupt position. Profitability and leverage affect a position's place in the queue.
Does Binance's proof of reserves cover futures insurance funds? No. Binance describes its Futures Insurance Funds as its own reserves, outside the user-verifiable proof-of-reserves view, which covers backing of ten named tokens at a dated snapshot.
Does a stop on a signal protect against ADL? The sources do not say that it does. CryptoSlate describes ADL as an exchange rule under which a profitable position can be selected for reduction. On every StratoSig signal the stop is set before you are in the trade. StratoSig signals are information and education only.
From StratoSig: On every StratoSig signal the stop is set before you are in the trade.
Crypto assets are high risk and unregulated in the UK. You could lose all the money you invest. StratoSig signals are for information and education only, not financial advice.