- The cryptocurrency exchange explained the flash crash that took place in May.
- The users will have to share the financial damage incurred by Poloniex BTC margin lending pool.
The US-based cryptocurrency exchange Poloniex revealed the details of the recent CLAM coin flash crash that led to inevitable unpleasant consequences to the exchange users.
What happened
On May 26, CLAM market experienced a severe price collapse, which triggered margin loan defaults and caused a generalized loss in the amount of 1800, incurred by Poloniex BTC margin lending pool.
“Today, we recognized the generalized loss across lenders in the BTC margin lending pool. As a result, the principal of all active BTC loans as of 14:00 UTC today has been reduced by 16.202%. This impacted 0.4% of Polo users,” the company wrote on Twitter.
Basically, Poloniex froze the accounts of users that failed to settle their positions and asked them to deposit the required amount.
Explaining the caused of the flash crash that resulted in heavy losses, the trading platform cited the speed of the price movement, low liquidity usage of CLAM as collateral:
“The losses to the lending pool occurred for several reasons. First, 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. Also, a significant amount of the total loan value was collateralized in CLAM, so both the borrowers’ positions and their collateral lost most of their value simultaneously”.
To avoid the situations in the future, the company will disable margin trading for four assets – BTS, CLAM, FCT and MAID –
“In order for margin liquidations to process in an orderly manner, the market must have sufficient liquidity, and these tokens currently lack that liquidity.”
Apart from that, Poloniex enhanced risk monitoring procedures in margin markets and put additional market protections.
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