GDAX has promised to credit traders for any losses they experienced during the exchange’s Ethereum “flash crash” on June 21, when prices temporarily dropped to as low as $0.10.
Last week, GDAX experienced an Ethereum “flash crash” when a multimillion dollar market sell was placed on their order book. Orders ranging from $317.81 to $224.48 were used to complete the trade, resulting in a recorded 29.4% price drop that quickly triggered a cascade of stop loss orders and margin calls.
The ensuing flood of sell orders temporarily drove down the price of ETH on GDAX to as low at $0.10. GDAX was forced to temporarily halt ETH trading in response to the price movement. The exchange’s ETH price has since recovered and is now trading for just over $300.
GDAX is now offering to credit traders who experienced a margin call or stop loss order executed as a result of the price drop. In a blog post released Friday, GDAX said it would use company funds to restore the value of customers’ ETH-USD accounts to their equivalent value at the moment prior to the rapid price movement.
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GDAX was quick to assure traders that their “initial investigations show no indication of wrongdoing or account takeovers.” The crash was instead a result of a legitimate trade order which rapidly drove down the price, combined with a new margin trading system that the exchange had implemented earlier this year.
As such, vice president Adam White had previously stated that all trades would remain final in accordance with their trading rules:
Honoring properly executed orders is critical to maintaining the integrity of an exchange.
However, GDAX decided to credit traders’ losses as “an opportunity to demonstrate our long-term commitment to our customers and our belief in the future of this industry.” This means that all orders placed will remain valid, though traders will be able to recover any losses they incurred.
Our long-term ambition… is to be a leader among all exchange platforms and we are committed to serving as the most trusted provider to the world’s largest institutions and professional traders.
As such, GDAX has also stated that any buy orders executed during the price drop will be honored and will not be reversed. This means that any traders who bought ETH far below its market value will be able to keep any profits earned from its subsequent rebound.
GDAX reminded customers that “trading with advanced features like margin always carries inherent risk”. This is especially true regarding cryptocurrencies, which often experience rapid price swings occurring within a very short time span.
Although prices typically recover within days or even hours, such rapid price changes trigger stop-loss orders and margin calls that often lead to further losses. The resulting chain reaction creates a negative feedback loop that could theoretically drive the price to zero, as it actually did in this case.
Regulations are typically put in place to mitigate such risks in traditional securities trading. Decentralized cryptocurrencies are meant to remain unregulated by their very design, however, and therefore face these inherent dangers.
The flash crash also had a negative impact on ETH’s overall price, which dropped from around $340 to a low of $300 following the crash. Other exchanges such as Coinbase were also forced to halt trading as a result of the event.
Although ETH has been proving itself miraculously immune to the jaw-dropping corrections plaguing the market lately, GDAX’s flash crash highlights Ethereum’s own growing vulnerabilities. With the market’s bull run now slowly winding down, it remains to be seen how traders will be dealing with this fresh