Thread by @skew_markets

Another technical "incident" crushed ETH & crypto markets this week end

What happened? A sell order on Bitstamp flash crashed ETH 30% from $270 to $190 at 9.30 a.m UTC time on Sunday morning

Only ~$4mln traded in the 15 minutes candle

This created selling pressure on the derivatives side as Bitstamp is a key component of indices used to mark derivatives contracts - 33% of Bitmex perpetual swaps for instance

The BMX perpetual swap contract traded $20 below the price of ETHUSD - a very unusual 7% discount

The BMX perpetual swap traded 20x more in last 24h: > $600mln vs Bitstamp ~ $33mln

Open interest in $ terms is down 45%

This episode is reminiscent of a previous incident on bitcoin this time on the 17th of May - forcing some exchanges to tap in the insurance fund to offset customer bankruptcies (below Deribit)

zerohedge.com/news/2019-05-1…

Adding to the pressure, Ethereum also has a more developed decentralized margin trading ecosystem - triggering liquidations on the likes of Maker Dao and dYdX (source @LoanScan_io )

How could this be fixed? (1/2)

- new methodology to mark the underlying index in illiquid environments

This is clearly a focus point for derivatives exchanges: Deribit has started working on this, Bitmex added Kraken on top of Coinbase and Bitstamp

How could this be fixed? (2/2)

- reduce leverage to increase the relative size of the underlying market to the derivatives market (UK FCA and Japan FSA have started working on this)

- work on order execution on physical exchanges to reduce the likelihood of misexecuting trades