Margin lenders on crypto exchange platform Poloniex lost about $13.5 million due to an extreme price crash.
May 26 Flash Crash
Poloniex admitted in a recently published blog that a flash crash on May 26 led to the margin lenders on the platform to incur losses that amounted to around 1,800 bitcoin (BTC) or an estimated $13.5 million.
The sudden plunge in the clams (CLAM) market reportedly affected 0.4% of crypto users and led to the reduction of all live BTC loans by around 16.202%.
Frozen Borrowers accounts
Poloniex consequently had to freeze all the accounts of defaulted borrowers. These accounts will reportedly remain frozen until the account holders are able to finish repaying their loans. The US-based crypto exchange platform also stated that the affected lenders will receive the funds they lost as soon as the company retrieves the lost money.
The company also gave its own take on why the crash happened. According to Poloniex, there were several factors that led to the crash. The speed of the crash and the loss of liquidity in the CLAM exchange made it futile for all automatic liquidations of the CLAM margin posts to be converted as they typically would in a fluid market. Plus, a large part of the whole loan value was set as collateral in CLAM, thus the borrower’s collateral and positions lost the majority of their value at the same time.
In the previous month, Poloniex canceled their offers to US customers to trade in nine coins. The company explained that the move was due to the ambiguous regulatory atmosphere in the United States. The company underlined that at the moment, it’s impossible to tell whether the country’s regulators will look at digital assets as securities.