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

Margin lenders on Poloniex got hit with a 1,800 BTC ($13.5 million) loss, as a flash crash made it unlikely borrowers will be able to repay the debt.

AccessTimeIconJun 6, 2019 at 8:00 p.m. UTC
Updated Sep 13, 2021 at 9:17 a.m. UTC
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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

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