Poloniex, the cryptocurrency and digital asset exchange divulged in a post on Thursday that lenders in its BTC margin lending pool faced a loss of eighteen hundred bitcoins — around $14.2 million at the time of reporting, according to coinmarketcap. The loss allegedly occurred because of a flash crash in the CLAM market on May 26.
The crypto exchange’s P2P margin system includes both borrowers and lenders. It is to be noted that the lenders are pooled together and rewarded in interest in return for lending out their cryptocurrency and digital asset funds. Furthermore, for a customer to borrow the margin funds being lent, the customer must hold a definite amount of collateral to provide a level of assurance that the money owed has good chances of getting repaid at a later date.
On May 26, the margin-tradable CLAM market plunged by almost seventy seven percent in value in just forty five minutes on the crypto exchange. This incident caused an outbreak of liquidations premeditated to cut losses in order to pay off the lender.
Nevertheless, the velocity and enormity of the crash were too harsh for the crypto exchange’s automatic liquidation system to function properly in the illiquid market. This essentially led to a massive loss of eighteen hundred bitcoin that has yet to be reimbursed to the lenders.
In a post, Poloniex mentioned that the rapidity of the hurtle and the deficiency of liquidity in the CLAM market made it unfeasible for all of the automatic liquidations of CLAM margin positions to follow the course of action as they normally would have followed in a liquid market.