- BTC price drops 16% on derivatives exchange on Halloween, Coinbase at fault?
- Deribit reimburses 1.3 million from its company reserves, Insurance fund untouched
On October 31, 2019, at 21:00:00 UTC, the cryptocurrency derivatives exchange Deribit encountered BTC index calculation data issues causing the price of the bitcoin contract to take a drop of 16%, reaching almost $7,600.
deribits new halloween costume seems weird pic.twitter.com/z38XKNr06z
— Crypto Loomdart (@loomdart) October 31, 2019
This further caused the platform’s liquidation engine to “initiate erroneous liquidations.”
Coinbase at Fault?
Around that same time, Coinbase, one of the seven exchanges that make up the Deribit BTC Index, has been down for over an hour.
BTC price on Coinbase, The black box shows the gap in BTC price when the exchange went offline
This glitch in Coinbase has been cited as the reason behind Deribit Flash crashing.
WARNING: Order books on Coinbase glitched out to be non existent and Deribit flash crashed to $7,700.
Investingtating what happened, but it is still unclear.
Stay cautious guys.
— Jacob Canfield (@JacobCanfield) October 31, 2019
— Jonny Moe (@JonnyMoeTrades) October 31, 2019
However, the data analytics platform Skew Markets points out “the trades could only have happened because someone was selling at these levels!”
It could be because of the Deribit’s liquidation engine or some trader relying on the venue’s index to trade instead of their estimate of what “spot” was, as such “selling deep below actual fair value,” it notes.
But Deribit, Skew Markets points out has “one of the most robust indexes across all derivatives venue,” which was further strengthened by the exchange recently introducing LMAX’s feed.
— skew (@skew_markets) October 31, 2019
Deribit Reimburses 1.3 Million from its Company Reserves
Shortly after the incident occurred, the exchange shut down only to announce a few hours later on its Telegram channel, “We are investigating the situation and come with a statement soon.”
The exchange provided clarification that due to one platform providing incorrect prices the incident occurred. The platform (name not mentioned) that should have been removed as an outlier in the index calculation, Deribit stated it has been now suspended from the index calculation.
Deribit later shared that it will compensate the clients that were negatively impacted by this liquidator error. The exchange will be changing the price of liquidation to a fixed BTC level, varying per product say perpetual, futures, and options.
It brought back the equity of the user whose position got liquidated to the pre-incident level (around index price $9,160).
Deribit will reimburse over $1.3 million in losses from the BTC index calculation data issue around 21:00:00 UTC on October 31, 2019.
The Deribit Insurance fund will not be used to cover these losses, but compensation will be covered by Deribit.
— Deribit (@DeribitExchange) October 31, 2019
The last statement came from the exchange on Twitter announcing that Deribit has reimbursed all affected accounts. However, a few cases of incorrect reimbursements are there which the company is handling as they come.
We have reimbursed all affected accounts. A total of ~150 BTC has been reimbursed by Deribit.
The insurance fund will remain unaffected and all reimbursement will be paid by Deribit Company reserves.
Again, our sincerest apologies for all inconvenience caused.
— Deribit (@DeribitExchange) November 1, 2019
A total of approximately 150 BTC has been reimbursed from Deribit Company reserves.
Though some users were not all satisfied with the exchange’s decision to not roll over the trade or with the reimbursement, many did praise the platform for making the right “rare” call.
“Things like this happen in many exchanges and they happen often, you can look at Kraken or Binance wicks, for example, I didn't hear about any refund or a rollback from them,”
said trader BitBit.