Categories: Bitcoin Business

Margin Lenders Lost $13.5 Million in May to Poloniex Crypto Crash

Click here to view original web page at www.coindesk.com

Crypto exchange Poloniex revealed in a post Thursday that lenders in its bitcoin margin lending pool suffered a loss of 1800 BTC — roughly $13.5 million at current market prices — due to a flash crash in the Clams (CLAM) market on May 26.

Poloniex’s peer-to-peer margin system includes both lenders and borrowers, the lenders of which are pooled together and rewarded in interest for lending out their funds. In order for a user to borrow the margin funds being lent, he or she must hold a certain amount of collateral to provide a level of certainty that the debt will be able to be repaid at a later date.

On May 26, the margin tradable Clams (CLAM) market dropped by nearly 77 percent in value in just 45 minutes on Poloniex, causing a flurry of liquidations designed to cut losses in order to repay the lender.

However, the speed and magnitude of the crash were too severe for Poloniex’s automatic liquidation system to function properly in the illiquid market. This resulted in the 1,800 BTC loss that has yet to be repaid to the lenders.

In the post, Poloniex stated:

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

In total, this erased 16.202 percent of the entire margin lending pool and affected 0.4 percent of all Poloniex users, the post revealed.

Unfortunately for both lenders and borrowers in this case, much of the collateral provided by the borrowers was in the CLAM cryptocurrency itself. Since CLAM is now trading at $4.96, a value 80 percent less than moments before the crash, it’s unlikely the borrowers are capable of repaying said debt.

“Lenders impacted will see the reduction in their accounts when they next log in,” the post added.

Further, Poloniex said that it is seeking to contact those that defaulted on the loans in question.

“We’re pursuing the defaulted borrowers to get them to repay the BTC they owe to lenders. As we recover funds, we will return them to affected lenders. We’re also exploring other ways to help defray margin lender losses,” the exchange said. “We will continue to communicate with impacted lenders on the status of these efforts.”

To combat another situation like this going forward, Poloniex is taking steps to protect its margin users including removing illiquid markets such as BTS, CLAM, FCT, and MAID, add adding layers of processes and protections to monitor the risk in its margin markets.

Disclosure: The author holds several cryptocurrencies. Please see his author bio for more information.

Poloniex image via Shutterstock

cinerama

Illuminati, Mason, Anonymous I'll never tell. I can tell you this, global power is shifting and those who have the new intelligence are working to acquire this new force. You matter naught except to yourself, therefore prepare for the least expected and make your place in the new world order.

Disqus Comments Loading...
Share
Published by
cinerama

Recent Posts

CME Group Reveals Plan for Bitcoin Options in Q1 2020

Leading derivatives exchange operator, CME Group announced in a press release today that it will launch options on its bitcoin… Read More

6 hours ago

Analyst: Bakkt Launch to Improve Trustworthiness of Crypto Markets

For the past year many participants within the crypto markets have been looking towards the official launch of Bakkt as… Read More

6 hours ago

IBM Stock Gets a Blockchain Pop

IBM (NYSE: IBM ) investors haven’t had all that much to complain about in 2019. After a precipitous drop over… Read More

6 hours ago

I-Team: Bitcoin scams rob Triangle investors of $54K

RALEIGH, N.C. (WTVD) -- A series of online heists is robbing even the most tech-savvy people in the Triangle.According to… Read More

6 hours ago

Colombia is slowly moving toward Bitcoin-friendly regulations

To say Colombia doesn’t have the best cryptocurrency regulations in the world would be an understatement. As it stands, crypto,… Read More

6 hours ago

Ethereum price analysis: Bulls take full control of ETH/USD

ETH/USD went up from $218.55 to $220.60. The Relative Strength Index (RSI) indicator is trending in the overbought zone. ETH/USD… Read More

6 hours ago

This website uses cookies. We use these cookies to collect data about your interaction with our website for the purpose of continuously improving your experience with our site. For more information we encourage you to read our privacy policy.

Read More