Deribit Reimbursed $1.3M in User Losses Following Flash Crash

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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

Marius Jansen, COO of Deribit, said in an email to Finance Magnates that "a total of approximately 150 BTC was reimbursed by Deribit earlier this morning."

"Deribit has this morning compensated clients that were negatively impacted by this liquidation error," he said. "Equity levels of clients that were either liquidated or negatively impacted by unwarranted stop-loss orders have been brought back to pre-incident level. Ethereum trading was not affected."

Additionally, "the Deribit insurance fund was not used for these reimbursements as they have been paid by Deribit Company reserves. We would like to also stress once again Deribit does not operate an internal trading desk of any kind, no (trading) gains were made during this incident."

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

What happened?

At roughly 21:00 UTC on October 31st, the price of BTC on Deribit briefly plunged from $9,150 to $7,720. The price bounced back up over $9,000 within minutes.

$BTC just traded 7700 in Deribit.

Trick or treat. Today is Halloween for bots as well. pic.twitter.com/pwGizwm47N — Alex Krüger (@krugermacro) October 31, 2019

Jansen said that this was caused by "one BTC index constituent providing incorrect prices that should have been removed as an outlier in the index calculation."

He added that "we have suspended this platform from the index calculation."

Deribit said that on Twitter that it would attempt to rectify the incident by “changing the price of stop-loss trades to a fixed BTC level varying per product (perpetual, future, options),” and that “equity will be brought back to the pre-incident level (around index price $9160).”

Same will be offered to SL orders initiated at erroneous levels.

Deribit will do so by changing the price of stop-loss trades to a fixed BTC level varying per product (perpetual, future, options). equity will be brought back to the pre-incident level (around index price $9160). — Deribit (@DeribitExchange) October 31, 2019

Deribit's decision not to roll back trades was somewhat controversial among users

However, a number of Deribit users were displeased that Deribit has made the decision not to roll back trades that happened as a result of the flash crash.

You have lost my trust by failing to roll back trades. There is no excuse in the event of a bad print to not do so and anyone who's traded professionally will know this. Very disappointed and I will be searching for a new primary exchange.

— Eric Crown (@KrownCryptoCave) November 1, 2019

However, Marius Jansen told Finance Magnates that the decision not to roll back the trades was made because "BTC markets are very much interconnected, [and] trades on our market may have been hedged on other platforms."

"A rollback would have taken multiple hours and by doing so clients would have been exposed to market moves for a longer time. We decided not to do this and put our clients’ interest and trust in our market first," he explained.

Deribit responded to users on Twitter who complained about losses by directing them towards steps for compensation.

Hi DonBitcoins,

Deribit will compensate clients that were negatively impacted by liquidations/stops triggered by this error. Please reach out to support@deribit.com concerning your stop order opening a new position. — Deribit (@DeribitExchange) November 1, 2019

"We naturally regret this incident from happening but believe we have fairly compensated all involved and will focus on further improving our index and liquidation engine to prevent similar incidents (sic)," Jansen told Finance Magnates.

A smaller flash crash on Coinbase preceded Deribit

Deribit’s flash crash was preceded by another flash crash of a smaller magnitude on cryptocurrency exchange Coinbase Pro. Roughly one hour before the Derebit crash, the price of BTC on Coinbase Pro sharply dropped form $9,260 to $9,055.

Additionally, at least one user reported that their stop-loss order was “deleted” before it was executed. Quoting a user on the Dojo trading forum, CoinDesk wrote that one user said that “Coinbase crashed as far as I can see. And it deleted my Stop Loss as it happened, nothing sold for me despite the price being lower than where my stop was.”