As you know, the DeFi craze continues! As one of the few exchanges that support a LINK perpetual contract, Phemex has a significant trading volume for its LINK/USD pair. At 23:09 UTC of August 17, 2020, our LINK contract experienced a large dip in price. While the mark price was at about $16.82, the last traded price dropped down to $10.60. I write this now to explain what happened, dispel any confusion, and to clear any concerns you might have.
First of all, I’d like to eliminate the biggest worry that this incident has caused. I want to make it very clear that the last traded price does not, and will not trigger a liquidation. Only the mark price can trigger liquidations.
Second, if any of our clients have experienced a bad market sell order execution price, please contact our Phemex Customer Support team and we will do our best to cover your losses.
Third, for all clients that purchased any LINK/USD contracts at very low prices, Phemex honors all trades and will never roll these back.
So what exactly happened? There are two primary factors to consider.
- When the mark price starts to dip, this is followed by a large number of triggered liquidations. These began to eat up the order book.
- Market makers attempted to re-fill the order book. However, they were simply not as fast as the liquidation engine. Since the liquidation engine is an internal program, it was designed to force sell as quickly as possible.
As a consequence, the liquidation engine had to borrow from the USD insurance fund to force sell all those positions. As you can see from this chart https://phemex.com/contract/insurance-fund (click the USD tab), the insurance fund was reduced a great deal during this period.
However, the good news is that Phemex has an increasing number of Market Makers and we continue to invite more. Our DMM program is about to launch soon, which will further encourage MMers to provide us with liquidity during such extreme cases. In addition, Phemex’s insurance fund has also accumulated more than enough funds to cover these types of incidents.
Putting our clients first is our strongest core value. Please feel free to contact our team if you have any further questions. As always, Phemex will continue to be successful thanks to your support.