Cryptocurrency Exchange

Poloniex Flash Crash Resulted Margin Lenders to lose BTC of worth 1800

American based cryptocurrency exchange Poloniex on June 6th, revealed an incident that occurred in their exchange. Margin lenders in its bitcoin lending pool incurred a loss of worth 1800 BTC, equal to 13.5 million as per existing market prices. The incidence happened in a CLAM market due to a serious flash crash on May 26th, 2019.

The serious price crash in the clams (CLAM) market resulted in a huge loss. The incident nearly impacted 0.4 percent of users and also led the exchange to cut around 16.202 percent of overall active BTC loans.

After the price crash incidence, there are legal questions hanging over the crypto exchange and very little known crypto coins CLAM have forced the company to liquidate the trader’s position on the platform.

What Happened on May 26?

May 26th seems to be a difficult day for Poloniex, the cryptocurrency exchange on that day noticed $CLAM altcoin down by two-thirds of its value, this severe collapse of the altcoin made the margin lending pool to lose more than $13 million, by considering today’s, bitcoin value.  Now, Poloniex is seeking to recover the huge loss of the lending pool by striking to 1,800 BTC from the active BTC margin loans.

In the margin trading process, exchanges and traders can give crypto with an interest rate to the borrowers to trade. When a borrower fails to repay back the loan, they default, lose money they don’t have to plead with.

CLAM is a coin with low liquidity, some began trading with CLAM and started to default on their crypto loan because the value of the coin started falling, the borrowers failed to repay the amount they took from lenders since the value of their assets was much less than they borrowed.

On 26th May, the CALM coin has fallen down by almost 77 percent within 45 minutes on the cryptocurrency exchange Poloniex. This led to the liquidation of the exchange to reduce losses so as to pay back the amount to the lender.

The automatic liquidation system of Poloniex could not digest the speed and the magnitude of the crash and failed to function in the illiquid market. This made the exchange to lose 1,800 BTC and the exchange is yet to repay the amount to lenders.

Poloniex mentioned in a post:

The velocity of the crash and the lack of liquidity in the CLAM market made it impossible for all of the automatic liquidation of CALM margin positions to process as they normally would in a liquid market.

The post also stated that affected lenders would be able to notice the reduction in their accounts when they login for the next time.

Poloniex mentioned we’re tracking the default borrowers in order to make them repay the BTC amount they took from the lenders. As soon as we collect the funds back, we will give them to the lenders impacted. We are also looking at alternative ways to assist in settling the losses of margin lenders. We will further continue to interact with the impacted lenders and inform them about the status of our work.

Poloniex move to combat such incidence:

Poloniex has learned through this incidence and now preparing itself to fight any such incidence in the future. The crypto exchange has taken considerable steps to protect its margin lenders and included removing illiquid markets such as FCT, CLAM, BTS, and MAID, the exchange adds extra layers to track the risk in margin markets.

Leave a Reply