Margin Lenders Lost $13.5 Million in May to Poloniex Crypto Crash

Crypto exchange Poloniex revealed in a post Thursday that lenders in its bitcoin margin lending pool suffered a loss of 1800 BTC - roughly $13.5 million at current market prices - due to a flash crash in the Clams market on May 26.

Poloniex's peer-to-peer margin system includes both lenders and borrowers, the lenders of which are pooled together and rewarded in interest for lending out their funds.

On May 26, the margin-tradable Clams market dropped by nearly 77 percent in value in just 45 minutes on Poloniex, causing a flurry of liquidations designed to cut losses in order to repay the lender.

This resulted in the 1,800 BTC loss that has yet to be repaid to the lenders.

"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 total, this erased 16.202 percent of the entire margin lending pool and affected 0.4 percent of all Poloniex users, the post revealed.

Unfortunately for both lenders and borrowers in this case, much of the collateral provided by the borrowers was in the CLAM cryptocurrency itself.

"We're pursuing the defaulted borrowers to get them to repay the BTC they owe to lenders. As we recover funds, we will return them to affected lenders. We're also exploring other ways to help defray margin lender losses," the exchange said.

"We will continue to communicate with impacted lenders on the status of these efforts."

To combat another situation like this going forward, Poloniex is taking steps to protect its margin users including removing illiquid markets such as BTS, CLAM, FCT, and MAID, add adding layers of processes and protections to monitor the risk in its margin markets.