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Binance SAFU Proves Valuable as Poloniex Exchange Cuts $13.5 M Worth of BTC From Its Lenders

By June 7, 2019 No Comments

Popular cryptocurrency exchange Poloniex has decided to socialize the loss of about $13.5 million worth of Bitcoin between its shared lending pool. The impacted users represent 0.4% of the total exchange users. The event goes on to highlight the benefits of Binance’s “SAFU” fund and has caused serious turmoil throughout the cryptocurrency community.

Poloniex Cuts Losses of $13.5M Worth of BTC Between Its Lenders

In an official blog post published on June 6th, popular cryptocurrency exchange Poloniex explained that it experienced a severe crash in its margin-tradable Clams which resulted in a loss of 1800 BTC in the exchange’s BTC margin lending pool.

The post also details the reasons for which the flash crash took place.

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.

More alarmingly, however, was the way Poloniex decided to handle the matter. All of the BTC loans for margin trading on Poloniex are lent in a shared pool across all markets and borrowers. The principal of the active BTC loans as of the date of the official blog post’s publishing had been reduced by 16.202 percent, impacting a total of 0.4 percent of the exchange’s total user base.

The impacted lenders are said to see the reduction in their accounts upon their next log in. Just a few hours ago, all markets were reopened.

The event caused serious distress in the cryptocurrency community, as some users reported that they got their funds cut even though they haven’t been lending during the time of the flash crash.

It’s also worth noting that this isn’t the first time Poloniex experiences issues of the kind. Back in 2014, the exchange got hacked resulting in massive losses. However, back then, it decided to record all the balances and to pay back its customers by using the generated exchange fees, as well as by personal contributions. Naturally, the fees were increased to speed up the process but the approach was perceived a lot better compared to this time.

Binance SAFU is The Right Way

While instating haircuts to socialize losses is something used by other hacked exchanges such as Cryptopia, there’s obviously a better way to handle emergencies of the kind.

Earlier in May, the world’s leading cryptocurrency exchange, Binance, got hacked, losing about $40M worth of BTC.

As Cryptopotato reported, however, the way Binance handled the recovery process was a lot better. Binance had earlier created the so-called Secure ASset Fund, popularly touted “SAFU.” The fund sees 10 percent of all trading fees received into it in order to offer protection to Binance users in extreme cases.

Back at the time, Changpeng Zhao reassured that the fund already had enough money to cover the losses entirely, without having to instate haircuts on any of the users.

The events highlight the importance of putting appropriate preliminary security measures in place. It’s clear that even the most popular, and presumably most secure cryptocurrency exchange such as Binance can get hacked. However, it managed to take actions well before the event and handled it in the best way possible.

The views and opinions expressed in the article Binance SAFU Proves Valuable as Poloniex Exchange Cuts $13.5 M Worth of BTC From Its Lenders do not reflect that of 48coins, nor of its originally published source. Article does not constitute financial advice. Kindly proceed with caution and always do your own research.

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