Overview of BTC Margin Lending Pool Losses

On Poloniex, we provide a peer-to-peer margin lending and borrowing system for our customers outside of the United States. Below, we explain losses that recently occurred in the margin lending pool.

What happened

On May 26, a sudden, severe price crash in the CLAM market caused a number of margin loans to default, resulting in a roughly 1800 BTC generalized loss in the Poloniex BTC margin lending pool.

All BTC loans on Poloniex are lent in a common pool that is shared across all markets and borrowers. 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 action impacted 0.4% of Poloniex users. Lenders impacted will see the reduction in their accounts when they next log in. All of the defaulted borrowers’ accounts were frozen after they defaulted and will remain frozen until they repay their loans and comply with Poloniex terms of service.

Why losses occurred

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. 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. As a result, some borrowers were unable to repay their loans with the digital assets they held on Poloniex.

To learn more about how the Poloniex margin and lending pool works, please read this companion blog post.

What we’re doing about it

Make no mistake, we’re committed to making affected lenders whole, come hell or high water. We’re working on meeting this goal, including (but not limited to) recovering what the defaulted borrowers owe lenders. Regardless, losses will be addressed. We will continue to communicate with impacted lenders on the status of these efforts.

Although margin lending and trading is inherently risky, we are adding additional protections for our lenders and borrowers to help prevent losses like these from occurring again. These changes include the following:

  1. To protect lenders, we are removing margin trading for 4 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. We will continue to monitor them and may reinstate margin trading for them in the future. We have communicated directly with all margin lenders in these markets.
  2. We have added additional layers to the processes already in place to monitor risk in margin markets. If our monitors detect problems in other margin markets, we may disable margin trading for those assets.
  3. We’re putting additional market protections in place beyond those we already rely upon. These new protections will help prevent major price slippage and over-concentrated positions. This includes the launch of our previously announced integration of NICE/Actimize’s market surveillance tool, which began running on June 1 and will continue to be improved upon by our internal surveillance and engineering teams.

We will continue to add monitoring, smarter controls, and more sophisticated market protections.

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