Deribit Flash Crash | $1.3 mn good reasons for DIA Data
Last week was a reminder of the importance of trusted financial data. Deribit, a leading cryptocurrency Future & Option exchange, made a Bitcoin pricing miscalculation which led to an automatic execution of multiple liquidations on the exchange.
While it seems the outlier cleaning Algorithm of Deribit did not exclude inactive exchanges, or take into account weightings on traded volume, which would have also led to the exclusion of outliers as per 0 value, explicit manipulation attempts on these index glitches similar to the traditional markets become more likely as the market grows.
Going back to 2018, where CoinMarketCap removed Korean Exchange prices, leading to a BTC price drop, The Digital Asset Space is prone to data-driven pricing manipulation and proprietary index creation. With more AUMs in the space and decentralized automation via smart-contracts starting to kick-off, a need for trusted, auditable financial data becomes more imminent.
Equity Flash Crash 2010: How $1 trillion in value disappeared in 36 minutes
The 2010 Flash Crash was a United States trillion-dollar stock market crash, which started at 2:32 p.m. EDT and lasted for approximately 36 minutes. Stock indices, such as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite, collapsed and rebounded very rapidly. A 2014 report described it as one of the most turbulent periods in the history of financial markets.
The New York Times noted:
Automatic computerized traders on the stock market shut down as they detected the sharp rise in buying and selling
As computerized high-frequency traders exited the stock market, the resulting lack of liquidity “caused shares of some prominent companies like Procter & Gamble and Accenture to trade down as low as a penny or as high as $100,000”. After investigation, in April 2015, Navinder Singh Sarao, a London-based point-and-click trader, was arrested for his alleged role in the flash crash. According to criminal charges brought by the United States Department of Justice, Sarao allegedly used an automated program to generate large sell orders, pushing down prices, which he then cancelled to buy at the lower market prices“
DIA data cleaning mitigated flash crash
DIA is providing a solution, providing clean and open-source financial data to DLT and traditional financial markets.
Incumbent Financial Data Providers are mostly operating in a closed, proprietary environment and are not accessible to the broader mass market. We see these closed, non-auditable information silos as the main threat to financial stability in future financial markets. With a higher level of automation through ETFs, and even more with Oracles delivering data into smart-contracts, manipulation attempts and pricing errors could have devastating consequences for the ecosystem.
Outlier Cleaning Algorithm
Moving Average Algorithm
The DIA algorithm records trades on several exchanges and weighs them with their volume to measure their relevance in the market price. By that we are able to track the market as close as possible. A byproduct of this algorithm is, that if exchanges report erroneous average market prices, or go entirely offline, these glitches have no impact to our results.
To protect the results against erroneous data on individual trades, trades with serious aberrations are not considered in the resulting values at all. Constant monitoring of moving averages allows to detect such irregularities and to clean them. You can find the exports of the BTC/USD prices at the time below this article.
The DIA Solution: Data as a trusted, open-source commodity
With our data feeds via API or Oracle, we supply the ecosystem with trusted financial data, for free, open-source, always looking for input and engagement with the community.
You can use the data as well as outputs for your own applications, from traditional tracker certificates to arbitrage trading bots.
You can find our documentation here: https://docs.diadata.org/en/latest/api/
And the link to the BTC API feed here: https://api.diadata.org/v1/symbol/BTC
Any questions, comments, inputs. Drop us a line.
