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Kraken will reimburse users who lost funds in its platform’s flash crash

Photo of: Joseph Stone
by Joseph Stone

On February 22nd, the entire cryptocurrencies market experienced a significant correction, supported by a downward movement in the price of Bitcoin (BTC). The vast majority of cryptocurrencies followed the movement, including Ether (ETH).

This correction lasted several hours and the price of Ether went from $1,800 to nearly $1,500 at its lowest point on all platforms except one: the Kraken.

On the Kraken exchange, which is considered an industry benchmark, the Ether was hit by a lightning crash of unprecedented power. In the space of just a few minutes, ETH’s price on the Kraken plunged to $700.

Kevin Lu, blockchain analyst for the analysis firm CoinMetric, summarized the situation in a tweet. It shows an overlay of the Ether course on several platforms. Shown in pink, we notice that only the Kraken was hit by a flash crash.

Amazed, the cryptosphere then accused Kraken and its systems of having been hit by a technical failure, which would have caused this flash crash. Kraken quickly denied these accusations and ensured that its transaction processing device functioned properly during the fluctuating ETH price.

In fact, this impressive fall was probably caused by a series of liquidations on the margin positions and the serial triggering of stop losses. Although Kraken claims not to be at fault, the anger of the investors was so significant that the platform decided to compensate them.

According to a report in the media New Money Review, Kraken clients affected by the lightning crash were offered compensation ranging from 5 to 50% of their total losses.

Kraken co-founder and CEO Jesse Powell did not hesitate to respond to the dissatisfaction of some users on Twitter by suggesting that users should not use leverage if they do not understand the underlying risks.

“Our job is to secure your funds, not to tell you how to trade. Don’t trade with leverage if you don’t understand the risks. »

Jesse Powell maintains his position, hammering that Kraken is not the source of the problem. In another series of tweets, he nevertheless explains that the company was taking money out of its pocket to support the victims of the flash crash in order to retain and retain its customers.

The mystery remains to this day, even if the crypto-community remains convinced that the fault lies with Kraken. Moreover, the Ether is not the only cryptocurrency to have been hit by a flash crash.

Indeed, in parallel with Ethereum, ADA of the Cardano blockchain also experienced an unprecedented drop, going from nearly $0.80 to $0.10 on the Kraken over the same time horizon. Similarly for Polkadot’s DOT, which fell from $30 to nearly $15. Defending users while highlighting the other flash crashes, Kevin lu added :

“Given that many of their markets were affected, this really indicates some malfunction in their order matching engine – not price manipulation or [user] error. »

The simple fact that the Kraken was the source of several lightning crashes at the same time raises doubts as to the sincerity of their words…