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Huobi Now Has a $100 000 000 Liquidity Fund: What Does It Mean?

Huobi Now Has a $100 000 000 Liquidity Fund: What Does It Mean?


Not so long ago, Huobi launched a 20 000 BTC investor protection fund to help users out in case of force majeure. As if that wasn’t cool enough, now there’s a $100 000 000 liquidity pool to protect the token from dropping. Cuteness overload!

Smart is the new hot. Huobi is both. Need proof? Cybersecurity horrors are at an all-time high this year, but Huobi realized where the wind is blowing back in 2018, setting aside emergency money to protect its users and compensate them in case of trouble (unless they caused it, but that’s only fair). 

“In response to these increasing threats, Huobi, among the top 5 crypto exchanges by volume ($1.5 billion daily), has decided to launch an Investor Protection Fund (IPF). The fund aims at compensating users for their losses in case of an emergency. In essence, the exchange sets aside money which is used to refund customers if the exchange’s security is breached, or anything outside the control of the users happens on the exchange and assets are lost or compromised.”

It’s a huge, huge fund, with 20 000 Bitcoins, and it’s quite capable of helping users out even in case of dramatic attacks, like so:

  1. Huobi Security Reserve amounts to 20,000 BTC. This reserve is owned by our platform, stored in an independent address and is used to cope with extreme security accidents.
  2. With the exception of losses incurred as a result of users' own actions, Huobi Global will pay compensation upfront for losses arising from all other security incidents. The compensation comes from this reserve.

Huobi Global
February 5, 2018

As if that wasn’t enough, in a recent move, Huobi’s management transferred $100 000 000 to it after a drop in Huobi’s token price. Which was due to regular market movements. But the owner Justin Sun transferred the funds anyway. 

What is a liquidity fund?

A liquidity fund is a pool of money that is held by a company or institution to provide quick and easy access to assets when it is needed. A liquidity fund can also help an organization meet their long-term obligations such as paying off loans, debts, or other financial commitments. In order for a liquidity fund to be effective, it must have a sufficient amount of money available at all times.

The funds in a liquidity fund can come from multiple sources including investments, donations, or profits from operations. This helps organizations maintain their financial stability and makes it easier for them to handle unexpected expenses.

What’s "leveraged liquidation on the market caused by a few users" Justin is talking about?

Leveraged liquidation on the market caused by a few users is a situation in which the holdings of a select group of investors are so large that any sudden move in price can cause dramatic losses for the entire market. This is particularly true when the underlying asset is highly volatile, and the size of the holdings is substantial.

How will the liquidity fund help?

In the case of Huobi’s $100 million liquidity fund, it means that the exchange has set aside this amount of money to protect against market losses due to leveraged liquidations. 

In essence, this fund is meant to provide a safety net for all participants in the market, allowing them to continue trading without fear of significant losses due to any sudden price movement. 

The fund acts as a buffer, providing liquidity to mitigate losses during times of extreme volatility. 

This is a smart move, as well as a caring one. Many exchanges out there simply won’t care when you lose money (or even seize your funds themselves without explanations or let you down by building blindingly stupid security systems a 10-year-old could break into). 

Not many set up two separate funds to protect you. Does Huobi have reasons to worry? Nope. It’s “the world's top virtual asset trading platform with zero major security incidents since our founding nine years ago”. And it’s still taking care of you.

Still, when choosing an exchange, think with your head and do your own research.

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The materials found on the Cryptonica website shall not be taken as individual investment recommendations. The financial instruments or operations mentioned therein may not align with your investment profile or objectives. We assume no responsibility for any missing facts or inaccurate information in the texts. Cryptocurrencies are financial assets with high risk and volatility. Therefore, it is crucial that you conduct your own research on financial instruments and make independent decisions. Before engaging in any actions related to cryptocurrency, you shall study, understand, and comply with the laws applicable in your region and country.

Justin Sun

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