A rollback is implemented by exchanges and is a reversion of trades to a specific point in the past. Trades during this time are deemed to have occurred within the rollback period and erased from the trade history. These erased trades lose their impact on account balances and positions as if they had never been executed in the first place. The rollback mechanism is typically used under exceptional circumstances, which have caused abnormal price wicks, consequently causing erroneous trading activity. Due to this, the validity of the trades is questioned. Thus far, the main reasons for rollbacks on crypto exchanges have been: Very large market orders being instantaneously executed on one exchange, thus causing a significant price deviation relative to other exchanges.

Index vulnerable to manipulation, whether from an attack to its constituents or data feed irregularities, causing liquidation cascades on that exchange. In both cases, many clients lose money unexpectedly and due to price movements that are not present in the broader market. However, an equal number of traders gain from this, and therefore finding a solution that satisfies both sides is crucial. To explain further, we will look at a few different historical situations involving rollbacks and then analyze the Deribit case earlier this month. BTC/USD on OKEX , March 31, 2018

The best-known rollback in crypto markets was the rollback of the BTC/USD future on OKEX, on March 31, 2018. The price of June-2018 expiry futures on BTC/USD rapidly decreased from $7,000 to as low as $4,755 while the BTC price on spot markets globally remained stable at $7,000. Okex halted the trading, while the futures were still priced at $5,452 to avoid further damage and to understand how to address this situation. A large client outrage followed as the massive price move caused a cascade of liquidations. Okex explained the situation with an irregular selloff and vowed to protect its customers. The exchange later announced that it would implement a rollback period of roughly one and a half hours to cover the period of low prices. This announcement was extremely popular among clients who had been liquidated during this period. However, clients who opened new positions were disappointed, as they felt that they had taken the risk, yet have not been rewarded. They also questioned under what principles a series of trades can be deemed invalid. ETH/USD on COINBASE , June 22, 2017

On June 22, 2017, the ETH/USD market suddenly crashed from $319 to $0.10 cents. The price move was triggered by a series of large market sell orders, causing many clients to be liquidated or have their stop-losses hit. Trading was never halted and the price recovered soon after. Despite the client outrage, Coinbase remained firm in their decision. “Our initial investigation shows no indication of wrongdoing or account takeovers. We understand this event can be frustrating for our customers. Our matching engine operated as intended throughout this event and trading with advanced features like margin always carry inherent risk,” White said in a blog post.” Coinbase acted in accordance with the example set by other crypto exchanges, such as Kraken and Bitfinex, that follow the principle – all trades stand. In their trading rules, Coinbase strictly emphasizes the importance of trade finality as a principle of market integrity: “We are continuing to conduct a thorough investigation and will keep customers updated with any resulting actions. With that in mind, it is important to note that these trades are final in accordance with our GDAX Trading Rules (Section 3.1). Honoring properly executed orders is critical to maintaining the integrity of an exchange.” Three days later, Coinbase decided to reimburse clients. It is important to note that they decided to reimburse clients using company funds. They wanted to mitigate losses for those affected without hindering the principle of trade finality. Therefore, all traders were satisfied, reaching the best possible outcome for all. If rollback had been conducted instead, those who profited would have been punished and disincentivized from placing orders that increase market depth. BTC/USD on DERIBIT, November 1, 2019