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theblockcrypto.com/daily/96967/kr probably cascading liquidations + not enough liquidity

Why was there a 'flash crash' of the price of ETH on Kraken last month?

Kraken recently doled out "retention incentives" to users who were affected by a drop in the price of ETH at the venue on February 22. Why?

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Jesse Powell

@jespow

Mar 3, 2021

How much liquidity is enough liquidity?

SBF

@SBF_FTX

Mar 3, 2021

ya it's a good question. If there's no leverage it matters less: no one is compelled to trade, and so if there isn't "enough" liquidity people can just not sell. But liquidations --> forced selling --> demand for liquidity. I could be wrong! Was the crash driving by liqs?

Cristian Strat

@cgst

Mar 6, 2021

Can cascading liquidations alone explain why multiple books crashed at the same time? Several things need to happen for a liq crash: skewed trade flow, relatively thin books, market-makers unable or unwilling to react. "Low liquidity" is a necessary cause, but not sufficient

Cristian Strat

@cgst

Mar 6, 2021

I'm not implying anything nefarious here—I think Kraken & team are trustworthy. I think low liquidity is a cause almost tautologically, but other things have to happen at the same time as well. Some of these other things can conceivably be caused by technical glitches.

Replying to

and

"low" is a relative term. You could say buy/sell demand was significantly imbalanced for a moment. In addition to liquidations you have stop orders that triggered. Because so many markets dumped at the same time, you had a compounding effect of reduced collateral value/equity.

1:03 AM · Mar 6, 2021Twitter Web App

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Spoone Luv

@SpoonieLuv4519

Mar 6, 2021

Exactly. No one should trade on Kraken after this. Jesse you have destroyed yours and Kraken’s reputation. Your PR during this ordeal has been a disaster. So many of your users will never trust your site again particularly with how you treated them afterwards.