(BlockBar) Crypto exchange Poloniex revealed that lenders in its bitcoin margin lending pool suffered a loss of 1800 BTC which is roughly $13.5 million at current market prices. The loss happened due to a flash crash in the Clams (CLAM) market on May 26. The margin-tradable Clams (CLAM) market dropped by nearly 77 percent in value on Poloniex. To be noted it caused a flurry of liquidations designed to cut losses in order to repay the lender. 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.
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. Much of the collateral provided by the borrowers was in the CLAM cryptocurrency itself. It’s unlikely the borrowers are capable of repaying said debt since CLAM is now trading at $4.96, a value 80 percent less than moments before the crash.
According to Poloniex “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. Lenders impacted will see the reduction in their accounts when they next log in.” It affected 0.4 percent of all Poloniex users and in total, this erased 16.202 percent of the entire margin lending pool. Poloniex said that it is seeking to contact those that defaulted on the loans in question.
Poloniex is taking steps to protect its margin users including removing illiquid markets such as BTS, CLAM, FCT, and MAID, and adding layers of processes and protections to monitor the risk in its margin markets. The exchange said “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.”
