Poloniex Angers Margin Lenders by Haircut for 1,800 Bitcoin (BTC) Margin Trading Loss
The market for an obscure altcoin, Clams (CLAM) triggered liquidations for BTC margin lenders, ending up in a decision for Poloniex to socialize the loss.
Poloniex levied a haircut on Bitcoin (BTC) margin lenders, after a crash in the price of a small-scale altcoin, Clams (CLAM). The problem began when CLAM crashed from around $18.45 down to the $6 range within hours, triggering margin calls for the traders.
Traders, however, could not cover the margin call, and some of their collaterals were not in BTC, but also in CLAM. The losses were covered by BTC lenders, a group of traders offering BTC collaterals for an interest. But not only active lenders were affected - Poloniex took a shave from all lenders. The exchange explained its move in a recent blog posting:
“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%.”
Poloniex explained its move by stating it only affected 0.4% of its users. But the one-sided decision angered traders. The exchange has frozen the accounts of CLAM margin traders, and will only reopen them after they repay their collateral sufficiently.
Margin trading is extremely risky in highly volatile, low-volume altcoin markets. For that reason, Poloniex has decided to remove the option for a handful of assets considered risky:
“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.”
Digital asset trading remains unregulated, and Poloniex will add new safety measures based on the negative experience. Margin trading may work to achieve high gains during an upturn, but may also lead to devastating losses.
CLAM prices fell to $4.95, losing another 13% on Friday, extending the weekly loss to 29%.