Price Crash on Poloniex Causes 1800 BTC Margin Loss

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A sudden crash in the Poloniex margin lending market for CLAM has resulted in the loss of 1800 BTC worth of loan principal. Lenders will see the extent of their loss when they log in, borrowers who have defaulted will have their accounts frozen until they can repay their sustained default. Overall principal reduced by 16 percent and this has affected 0.4 percent of Poloniex users, June 6, 2019.

Liquidity Woes

The primary cause for the sudden price crash is said to be a lack of liquidity in the market on May 26, 2019. Loans on Poloniex are issued through a single common pool for borrowers and lenders. Despite this happening nearly two weeks ago, the changes and reduction will be reflected when users next login as Poloniex has only just reduced user accounts by the proportionate amounts of their loss.

The lack of liquidity and velocity of the crash allowed Poloniex’s liquidation engine to process all automatic liquidations as it normally does. A significant portion of loan value was collateralized in the market, meaning a borrowers position and their collateral were lost in one fell swoop.

Poloniex, which was earlier plagued with problems, has become a much more efficient exchange since the acquisition by Circle. The exchange is actively pursuing the defaulted borrowers and repaying lenders as and when they receive the defaulted funds and are keeping in touch with impacted lenders with their status on these efforts.

Risks of Crypto Lending

While the system is growing and the game theory of these networks is improving, there is still inherent risk in cryptocurrencies due to the peg to fiat and the volatility caused by that.

MakerDAO and other lending platforms that use cryptocurrency as collateral with a liquidation limit run the risk of such occurrences happening in the future. However safe they make their system, they cannot control the volatility of crypto and hence are susceptible to being affected by these price swings.

For these systems to make it past the niche of crypto enthusiasts and cater to a larger client base, the volatility risk of cryptocurrency needs to be eliminated.  This once again brings relevance to Andreas Antonopolous’ adoption paradox: for people to adopt crypto, the volatility needs to be eradicated. For volatility to be eradicated, people need to adopt crypto.

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