99% gone in 60 seconds: How a Polkadot trader may have crashed DOT futures

Polkadot (DOT) futures at Binance flash-crashed by 99.5%, potentially generating an $8.3 million profit for the ‘trader’ if they used this clever strategy.

On March 5, Polkadot (DOT) experienced a flash crash at Binance perpetual futures which resulted in the contract trading as low at $0.20. While this could have been an honest fat-finger trading mistake, a number of indicators point to a planned-attack.

While no hard evidence will likely ever emerge, the open interest increase just 24 hours ahead of the event indicates that an attacker could have generated a $8.3 million profit by manipulating Binance’s matching engine.

DOT perpetual futures on Mar. 4, USD pricing. Source: Binance

As shown above, during the 3-minute candle, $20.4 million worth of DOT contracts traded. Although the swift downside move was a 99.5% flash crash, it did not result in cascading liquidations.

Futures contracts liquidations are calculated using the price of spot exchanges. Thus, a flash-crash exclusively on futures prices would not impact most traders. According to Binance:

“The Price Index is a bucket of prices from the major Spot Market Exchanges, weighted by their relative volume.”

As per Binance’s support website, Polkadot coin-margined futures index price is composed of Kraken (DOT/USD), Binance (DOT/USD), Binance (DOT/BTC), OKEx (DOT/BTC) and Huobi’s (DOT/BTC) market.

It is worth noting that this specific contract is coin-margined instead of the more liquid Tether-settled one. Cointelegraph recently analyzed those differences, stating that the Tether-based contract “doesn’t need an active hedge to protect collateral (margin) exposure, thus it’s a better choice for retail traders.”

Data uncovers the planned ‘attack’

For an attacker to set up this trade, the first step would be building a leveraged long position while simultaneously creating short exposure using another account.

To create a flash crash while risking the minimum amount possible, preferably, this event should take place not more than a couple of days ahead of the planned ‘attack’.

DOT/USD perpetual futures open interest. Source: Binance

As depicted above, DOT/USD perpetual futures open interest grew from 1.92 million DOT to 3.34 million some 30 hours ahead of the flash crash, equivalent to a $47 million increase.

To differentiate the attack from a regular leveraged-long, one should track the long-to-short ratio. To maximize gains from the flash crash, the attacker would have created a substantially higher short leveraged amount, thus impacting the long-to-short ratio.

DOT/USD perpetual futures long-to-short ratio. Source: Binance

The data above shows that the average 4.25 ratio favoring longs was severely impacted during the open interest increase. This would confirm the theory of a coordinated attack.

How the trade is executed

By holding a considerably larger net short position when both accounts are combined, the attacker would profit from a flash crash. All this entity needs to initiate the event is to market sell the net long position. This move would trigger a substantial sell order, crashing the futures contract. Meanwhile, the other account, previously net short, would score big.

762,000 DOT contracts traded during the 3-minute flash-crash candle at a $26.73 average price. Considering the change in the long-to-short ratio, the attack most likely created a $30 million long position. Meanwhile, the secondary account held a $10 million net short exposure.

Although far from the 99.5% price crash, this 19% drop from $33 likely generated a $9.5 million gain for the account holding the $10 million short exposure if 5x leverage was in play. On the other hand, the collateral lost for the $30 million long position amounts to $1.2 million is 25x leverage was deployed.

It is important to emphasize that holders of Binance DOT futures contracts were unlikely affected by the flash crash. Therefore, the attackers’ net long account should be holding a negative balance, which the Binance insurance fund will likely cover.

The above calculations are mere speculations based on exchange-provided data. As previously mentioned, it is unlikely that hard evidence of this attack will ever surface.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Alpha Finance Lab rallies after integrating with Compound and Binance Smart Chain

Alpha Finance Lab’s recent integration with Binance Smart Chain and Compound Finance triggered an 85% rally in the protocol’s ALPHA governance token.

Alpha Finance Lab (ALPHA) experienced a price breakout on Feb. 25 as a series of significant partnerships has brought renewed interest in the cross-chain DeFi platform. 

Data from Cointelegraph Markets and TradingView shows that following the announcements, ALPHA price surged to $1.78 but Bitcoin’s recent struggle to hold $50,000 as support led to a sell-off among altcoins and ALPHA currently trades at $1.31.

ALPHA/USDT daily chart. Source: TradingView

One of the reasons for the sudden surge was the Feb. 25 announcement of a partnership with Compound Finance (COMP) that will allow Compound users to integrate with Alpha Homora and lend assets across platforms.

Due to the deposit APY on Ether (ETH) being higher on Alpha Homora, Compound users are presented with an opportunity to yield farm by borrowing ETH against collateral in their accounts and lending it on the ALPHA protocol.

Users are lured by lower fees on Binance Smart Chain

Alpha has is also benefiting from its recent integration with the Binance Smart Chain, which has been growing in popularity for being a low-fee alternative to transacting on the Ethereum network.

The team at ALPHA hinted at what lies ahead for the protocol in the following tweet acknowledging the recent progress of the Binance Smart Chain:

Following the Feb. 1 launch of Alpha Homora v2, which included the release of a limited edition NFT, the protocol has continued to expand its reach and establish new integrations with partners in the blossoming decentralized finance ecosystem.

The project also received a renewed boost of optimism on Feb. 22 after an agreement was reached on the terms of how Alpha Finance would repay Cream Finance (CREAM) for funds lost during an exploit of Alpha’s “Iron Bank” on Feb. 13. This exploit involved a hacker draining $37 million from the protocol. 

Currently, Compound finance is the third-ranked DeFi protocol by total value locked (TVL) and the partnership between it and Alpha Finance could further Alpha’s growth and exposure to new users in the months ahead.

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Binance Coin (BNB) hits a new all-time high one day before its token burn

A growing DEX ecosystem, competitive futures platform and low fee incentives pushed Binance Coin to a new all-time high one day ahead of its scheduled token burn.

Over the past 6 months, Binance Coin (BNB) has been quietly rallying higher, gaining 189% during this period and notching a new all-time high at $46.90 on Jan. 18. This price peak happened just one day before its quarterly token burn, leading investors to question whether or not BNB price will move higher once the event concludes. 

A token burn is a permanent removal of coins from circulation and this deflationary technique is a common practice used by many projects in the crypto sector. As Cointelegraph reported, the process does not destroy the coins but rather renders them unusable.

Aside from the supply change, Binance Chain recently launched smart contract capabilities which allow Decentralized Finance (DeFi) applications and cross-chain asset swaps to join. The exchange has also been wildly profitable since launch so al of these factors provide good reason for BNB’s appreciation.

BNB/USDT price (Binance). Source: TradingView

When Binance Futures rolled out, the exchange announced that futures platform revenue would be included in its BNB quarterly burn. These coins taken out of circulation will reflect a percentage of Binance’s earnings for the latest quarter of 2020.

Despite being the absolute market leader on futures contracts, the ever-growing exchange launched this service fairly recently. Over the 16 months since inception, the platform has grown to a $4 billion open interest. This number surpasses more established derivatives exchanges like OKEx, Huobi and BitMEX.

Initially, Binance stated that it would repurchase the coins slated for destruction, but this policy changed in February 2019. Thus, the actual token burn process involves reducing the potential supply until it reaches the 100 billion goal.

The latest BNB burning round occurred on Oct. 16, 2020, and it involved a total of 2.25 million BNB. Although its reported supply stands at 142.41 million, Messari calculates a 108.35 million liquid supply. This difference comes from coins currently restricted or vested, meaning they are not actually being traded.

Binance Chain’s evolution

After launching staking and validation services in September 2020, Binance Smart Chain quickly started gaining traction. The network adds Ethereum compatible smart contracts capacity to the original Binance Chain.

Shortly after launching, a host of decentralized applications started to emerge, totaling 60 projects and 600,000 unique smart chain addresses. Furthermore, 3 million BNB have been staked by network validators.

To date, cross-chain assets to Binance Chain have surpassed $250 million, and a $100 million accelerator fund was created to attract decentralized finance applications.

Binance Launchpad is also another positive factor that supports BNB’s value. The platform hosts Binance’s Initial Exchange Offering (IEO) and in 2020 six successful token sales occurred.

BNB Twitter user activity vs. market capitalization (USD). Source: TheTie

Data from TheTie, an alternative social analytics platform, shows that the recent price spike was accompanied by a sharp increase in Twitter user activity. Although this is not a fundamental factor, data shows that the more attention a token gets on social media, the easier it becomes to gather additional buying pressure.

Many investors believe that token burns positively impact price as the supply is constricted and this supposedly incentivizes investors to hold their tokens rather than market sell them at each top.

Interestingly, the latest burn had little to no impact on BNB price. This situation could indicate that the market is evolving to price in these events ahead of the announcement date.

On the other hand, investors may have perceived a non-circulating token burn as a non-event. Therefore, those recently buying BNB with the expectation of a post-burn pump may be sorely disappointed.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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