A trader lost $8.2 million on the Lighter exchange due to a collapsed margin position on ARC token, prompting liquidity measures.
A significant trader faced an $8.2 million loss on the Lighter exchange following a failed margin position involving perpetual contracts for the ARC token. This situation compelled the platform to tap into its reserve liquidity and activate its auto-deleveraging mechanism (ADL).
Lighter reported that the trader had been building a long position over several days, contributing to a total open interest of $50 million. In contrast, approximately 600 other traders had taken short positions against the ARC token.
The crisis unfolded when the price of ARC dropped sharply, resulting in the liquidation of positions worth around $2 million directly from the exchange's order book. The remaining volume was subsequently transferred to the Lighter liquidity pool (LLP), where it was managed under a high-risk strategy.
To mitigate the fallout, the platform activated the ADL, which forced the closure of some profitable short positions, allowing the system to safely unwind the losing position of the major trader. At one point, the LLP absorbed nearly 200 million ARC tokens, valued at approximately $14.7 million, before the losses continued to mount as prices fell further.
Managing Risk
Despite the significant liquidation, liquidity providers experienced minimal losses, totaling just around $75,000. Lighter clarified that ARC trading occurred within an isolated environment, ensuring that the incident did not impact the exchange's primary liquidity pool. Short traders who positioned themselves against the major trader ultimately turned a profit.
“The major trader lost about $8.2 million USDC, LLP lost $75,000, while the short traders who took the risk ended up in the black,” the DEX team stated.
In response to the incident, Lighter has imposed new restrictions on the ARC market, including a cap on open interest set at $40 million. Additionally, the trading pair has been transitioned to a limited liquidity strategy, backed by a dedicated capital of $100,000 in USDC. Should this capital be depleted, the system will automatically engage the ADL to manage risks.
Developers indicated that similar restrictions may be applied to other assets in the future. In a related note, the Hyperliquid exchange recently suspended deposits and withdrawals amid concerns of price manipulation involving the meme coin POPCAT, where one trader's long position of $30 million across multiple wallets led to mass liquidations and a loss of $4.9 million for the platform's liquidity pool.
