A immense cryptocurrency trader lost $8.2 million after a leveraged bet on the ARC perpetual market was unwound on the decentralized derivatives platform Lighter, forcing the platform to tap into its collateral liquidity and trigger automatic deleveraging to manage risk.
In a series of posts on X, platform explained that the whale built a very immense long position in a matter of days, bringing the total open interest in the ARC (ARC) market to about $50 million, while about 600 traders and market makers took the opposite side.
The trade began to fail when the price of ARC dropped around 6:00 PM EST on Wednesday. The approximately $2 million position was liquidated in the order book and the remaining position was transferred to Lighter’s liquidity provider (LLP) pool, where it was handled under the high-risk strategy category.
The platform then activated its automatic deleveraging (ADL) feature, which meant that some profitable compact traders were partially closed out so that the system could safely exit the position. At one point, the LLP briefly absorbed approximately 200 million ARCs worth $14.7 million, before the position was further reduced as prices continued to decline.
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Risk limits limit LP losses to $75,000
Even with a immense liquidation, losses for liquidity providers were narrow. Lighter said this only had an impact of about $75,000 because the ARC market was isolated in a separate risk bucket rather than disclosing the exchange’s entire liquidity pool. Tiny traders who took positions against the whale made profits.
“Ultimately, the large long trader lost approximately $8.2 million USDC (USDC), the LLP lost $75,000, and the short traders who took the risk of betting against the position profited,” Lighter wrote.
After this incident, Lighter added up-to-date security measures to the market. In the pop-up message about it websitethe platform said it has introduced a $40 million open interest cap on ARC and placed the pair under a restricted liquidity strategy with an allocated capital of approximately $100,000 USDC. If this liquidity is exhausted, the system will automatically move to ADL to close the risk.
The exchange said similar restrictions may apply to other assets.
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Concerns about manipulation on decentralized platforms
The incident occurred amid concerns about price manipulation on decentralized trading platforms. Last August, four whales were accused of manipulating the price of the Plasma token (XPL) on the Hyperliquid platform after the asset’s value increased by approximately 200% to over $1.80 in a matter of minutes.
In June, DeFi protocol Resupply suffered a security breach on its wstUSR marketplace, resulting in $9.6 million in losses after an attacker manipulated prices by integrating with the cvcrvUSD synthetic stablecoin.
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