Backpack CEO Armani Ferrante has spoken openly about the importance of building solid risk systems in crypto exchanges. Without directly naming FTX or Alameda in every statement, Ferrante made it clear that their collapse remains a powerful lesson, especially now after acquiring it.
He emphasized that transparency in risk management is just as important as safeguarding custody. Reflecting on the FTX scandal, Ferrante noted how what was once marketed as an “incredible risk engine” had ironically enabled dangerous practices—like offering unlimited credit to Alameda, leading to billions in customer losses.
A Real-Time Test for Backpack
The recent volatility in the crypto market has put Backpack’s systems under intense pressure. Ferrante said their infrastructure handled the highest workloads ever recorded for the platform.
Despite the chaos, the risk engine held up, proving itself under stress. He explained that while there are no perfect systems, every market shock is a chance to improve. The performance of the risk engine during such periods gives him confidence that Backpack is on the right path.
The Liquidation Process at Backpack
Ferrante went into detail about how liquidations work on the Backpack platform. He noted that most crypto exchanges operate their own market makers, which can sometimes lead to conflicts of interest.
Backpack, however, does not run its market maker. This means the exchange has no hidden incentive to force liquidations on users, outside of basic solvency requirements.
Ferrante believes this makes Backpack’s system fairer and more user-focused. He revealed that 99.82% of liquidations during recent market swings were processed directly on the order book.
Only a tiny fraction, 0.18%, went through the backstop system, and none required auto deleveraging. According to Ferrante, this shows the strength of their model.
He admitted the platform might be too conservative with leverage now but expects that to balance out as user demand and open interest grow.
How the Risk Engine Works?
Backpack uses a three-step process for managing liquidations. First, it tries to settle positions on the order book. If that fails, it turns to a backstop, which is market makers willing to absorb risk in exchange for potential profit. Auto deleveraging, the last resort, is only used if both of those options are exhausted.
Ferrante explained that the system begins liquidating an account once the minimum margin requirement hits 100%.
Orders are canceled, borrows repaid, and positions slowly sold off to avoid dramatic price drops. The algorithm uses real-time depth data from the order book to avoid dumping assets all at once.
Even in worst-case scenarios, users are protected by price bands and moving averages that prevent unfair liquidations. If the market becomes too chaotic, bad orders are rejected, and users are shielded from sudden crashes.
Should those protections still fail, the backstop kicks in. And if the backstop gets overwhelmed, the platform uses auto deleveraging to reduce systemic risk.
Trust Is in the Risk Engine
Ferrante closed by stressing that, whether centralized or decentralized, any trading platform must have an honest and effective risk engine. He said that in times of extreme stress, these engines become as crucial as the vaults that hold the assets.
A poorly designed or dishonest risk system can be just as damaging as theft. For that reason, investors and users need to ask deeper questions—not just about custody and interface, but about how risk is handled behind the scenes.
Backpack’s approach may not solve all the industry’s problems, but it sets a clear standard. By focusing on transparency, fairness, and real-time performance, Ferrante hopes to build lasting trust.