Poloniex Price Crash Results in Margin Losses of $13.5 Million


Set against positive cryptocurrency activity in today’s trading session, there’s a worrying disruption that many crypto fans are talking about – details are still coming out on a price crash fiasco at exchange Poloniex that started May 26.

“Poloniex revealed that on May 26 a severe price crash in the clams (CLAM) market led to margin loans losses amounting to roughly 1,800 bitcoin (BTC), or approximately $13.5 million at the time,” writes Ana Alexandre at Cointelgraph.  “The incident affected 0.4% of all users and resulted in the reduction of all active BTC loans by 16.202%.”

Apparently, the sudden loss of value was so quick and significant that the exchange did not have funds to cover around $13.5 million dollars in losses related to margin trading. The big question would be why the exchange allowed so many people to trade on margin if the funds weren’t there.

“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,” Poloniex leaders said in a response statement. “In addition, 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.”

Readers will be forgiven for not understanding what CLAMS is – far from the use of this moniker as an old-school way to talk about U.S. dollars, CLAMS in today’s parlance is a new cryptocurrency that hard forked off of Bitcoin in 2014. It’s called Caritas Libertas Aequitas Monetas or “Freedom Fairness Equality Coins” and it has its own cult following related to its decentralized philosophy.

However, CLAMS has proven to be the Achilles’ heel for Poloniex, which has frozen all of these accounts pending efforts to get the money back.

“The exchange subsequently froze all of the defaulted borrowers’ accounts and will keep them frozen until the borrowers repay their loans,” Alexandre writes.  “Poloniex also claims that it will return the funds to affected lenders as soon as it recovers the lost money. “

We’ll see how this goes, and while it may have depressed the crypto market somewhat, it hasn’t blunted all of that markets momentum as coins headed into the green today with Bitcoin cresting $8000.