Poloniex's taking money from its customers to cover its loss

[yefi]

I'm getting legal advice, and I've received confirmation that pooling losses is illegal.
The default is 100% due to Poloniex's negligence. If the other trading platforms didn't allow margin trading on CLAM, that's because they were smarter.

Be prepared for a long battle if you seek remedy through the courts. It goes without saying that Gox claimants are still waiting for justice after five years.

[1713271392]

1713271392

[1713271392]

1713271392

[1713271392]

1713271392

[1713271392]

1713271392

[1713271392]

1713271392

[PrimeNumber7]

The 1800 BTC loss made up 20.96% of clams, if they were bought at the high. In other words, you could spend 1800 btc to buy 20.96% of clams outstanding at the high price. At 2.5x leverage, Poloniex's customers need to have collateral valued at 40% of margin loans outstanding, calculated by x = 1/2.5. 40% of 20.96 is 8.38, so an additional 8.38% of clams outstanding would need to be used as collateral for an 1800 BTC margin loan, bringing the total to 29.34% of clams.

I believe the above is actually how the margin system still works on Poloniex, and this actually results in traders being able to get 3.5x leverage, because they can use 1 BTC to buy 3.5 BTC worth of a position if the collateral is the same as the trading pair. I was able to replicate my mistake in saying that 35% of clams outstanding were used in margin loans plus collateral by incorrectly assuming a total of 2.5x leverage, or borrowing 1.5x the value of the clam collateral, or having equity of 60% of the margin loan.

Thanks. I see from your calculations that Clam would be treated as having zero value. That would tie in with my equation where 1939 is replaced by 0.

It is possible there was a higher percentage of clam in margin long positions and serving as collateral. I think most likely, Poloniex initially automatically market sold some margin long positions, stopped this, and sold the remaining clam held in customer accounts in margin long positions via an OTC trade.

I'm surprised that Polo isn't offering to at least compensate in some way, though, given the fault is probably partially on them for offering margin trading on illiquid markets anyways...

...especially when their positions should have automatically closed in the first place.

I'm getting legal advice, and I've received confirmation that pooling losses is illegal.
The default is 100% due to Poloniex's negligence. If the other trading platforms didn't allow margin trading on CLAM, that's because they were smarter.

Please see this:

<>
15. MARGIN TRADING
<>When you lend Digital Assets to other Users, you risk the loss of an unpaid principal if the borrower defaults on a loan and liquidation of the borrower’s Account fails to raise sufficient Digital Assets to cover the borrower’s debt. Although Poloniex takes several precautions to prevent borrowing Users from defaulting on loans, the high volatility and substantial risk of illiquidity in markets means that Poloniex cannot make any guarantees to any Users using the Services against default.
<>
29. GOVERNING LAW; VENUE AND ARBITRATION
<>
Except for claims for injunctive or equitable relief or claims regarding intellectual property rights (which may be brought, in an individual capacity only, and not on a class-wide or representative basis, in the courts specified above), any dispute between you and Poloniex related in any way to, or arising in any way from, our Services or this Agreement (“Dispute”) shall be finally settled on an individual, non-representative basis in binding arbitration in accordance with the American Arbitration Association (“AAA”) rules for arbitration of consumer-related disputes (available from AAA on its website at www.adr.org), as modified by this Agreement or in accordance with rules on which we may mutually agree; provided, however, that to the extent a Dispute is within the scope of a small claims court’s jurisdiction, either you or Poloniex may commence an action in small claims court, in the county (or equivalent) of your most recent physical address, to resolve the Dispute.

Any arbitration will be conducted by a single, neutral arbitrator and shall take place in Boston, Massachusetts, USA. The arbitrator may award any relief that a court of competent jurisdiction could award, including attorneys’ fees when authorized by law. The arbitral decision may be enforced in any court of competent jurisdiction. You hereby agree that this Agreement evidences a transaction involving interstate commerce, and therefore, the Federal Arbitration Act (“FAA”) applies to this Agreement, including the agreement to arbitrate set forth in this Section 29. We each agree that the FAA, and not state law, shall govern whether a Dispute is subject to arbitration.
<>

[countryfree]

Please see this:

Are you working for Poloniex?

Actually, I'm still getting the facts, and I have yet to understand how Poloniex took money from its clients.

I'm a victim here, my money was lent at Poloniex. It was not sitting waiting for an offer, it was lent. On Friday, the sum of money I had lent has been reduced by 16%. But the loans I had were still running. And that money, it was used by people doing some margin trading. So, those people doing margin trading at the time, have they experienced a 16% reduction of their trades?

We're talking about 1,800 BTC here. If I look at the daily volume traded at Poloniex, it's very, very substantial.

[PrimeNumber7]

Please see this:

Are you working for Poloniex?

Actually, I'm still getting the facts, and I have yet to understand how Poloniex took money from its clients.

I'm a victim here, my money was lent at Poloniex. It was not sitting waiting for an offer, it was lent. On Friday, the sum of money I had lent has been reduced by 16%. But the loans I had were still running. And that money, it was used by people doing some margin trading. So, those people doing margin trading at the time, have they experienced a 16% reduction of their trades?

We're talking about 1,800 BTC here. If I look at the daily volume traded at Poloniex, it's very, very substantial.

No I have never been affiliated with Poloniex, and after this incident I probably wouldn’t be interested in working for them if an opportunity presented itself.

I have an account with Poloniex that has dust amounts due to not closing out entire positions when trading and I have lent on Poloniex among other exchanges in the past.

Based on the available public information, Poloniex is claiming there were 11,250 btc, approximately in outstanding margin loans on the day of the flash crash. They are claiming that some positions were force liquidated and upon liquidation, after bringing account balances down to zero, there remains a deficit of 1800 btc that cannot be repaid. They have not said this, but I presume they kept these margin loans outstanding so lenders could not withdraw coin that should be deducted from their balance.

It is a well known risk that margin loans may not be repaid in full. This risk is disclosed in the TOS of any exchange that offers margin loans. Most exchanges will cover margin losses in order to maintain confidence in their lending markets, that will lead to higher liquidity and trading volumes. In this case, Poloniex probably decided the cost of covering the losses exceeded the additional revenue that continued margin lending will lead to.

Not everyone who had a margin loan outstanding at the time defaulted nor has negative equity, for example a customer who borrowed btc to bet on ETH going up presumably can repay their margin loan as agreed. Instead of deducting the balance from specific lenders whose loans defaulted, Poloniex socialized losses among all btc lenders. It is unclear to me if this specific action is legal and in accordance with their TOS, but I also understand why they would want to be this,  and I would presume they obtained legal counsel to advise them the legality of this action.

[2xHR]

Polo likes to socialize losses

https://bitcointalk.org/index.php?topic=499580.0

[buwaytress]

Reading this belatedly and just only now recalling that I used to loan out quite heavily on Poloniex in early and mid 2017. Didn't know it at the time, but my BTC was snapped up at really big interest rates (if I recall some even almost 1% daily) because of the huge FOMO going on especially in the alt markets. I made some really good profit just loaning out 10-30 day term loans. Had no idea I was exposing myself to "socialised losses".

The risks we take. As if leaving our funds on exchanges aren't enough risks. Glad I gave up doing that. Can't bear thinking of what happens if someone decides I should share their loss...

[countryfree]

Based on the available public information, Poloniex is claiming there were 11,250 btc, approximately in outstanding margin loans on the day of the flash crash.

11,250 btc?
Source, please. It sounds crazy that such a minor crypto was so heavily traded...

But I think we've talked enough about what happened on May the 26th. What needs to be explained is what happened on Friday the 14th of June. I've described what happened to me on post #23, just above.

[yefi]

11,250 btc?
Source, please. It sounds crazy that such a minor crypto was so heavily traded...

That number represents total loans across the platform, which is quite different from Clam trading volume. It is calculated by working backwards from the 16% and BTC1800 haircut.

Reading this belatedly and just only now recalling that I used to loan out quite heavily on Poloniex in early and mid 2017. Didn't know it at the time, but my BTC was snapped up at really big interest rates (if I recall some even almost 1% daily) because of the huge FOMO going on especially in the alt markets.

Good times. I remember getting 1% daily as well for a short while. 

[countryfree]

Reading this belatedly and just only now recalling that I used to loan out quite heavily on Poloniex in early and mid 2017. Didn't know it at the time, but my BTC was snapped up at really big interest rates (if I recall some even almost 1% daily) because of the huge FOMO going on especially in the alt markets.

Good times. I remember getting 1% daily as well for a short while. 

Yes, I was there too. Nowadays, I've lost 16% and it will take me many months to get them back. On other platforms, of course...

Nobody has talked about it, but one thing is strange:

Clam's crypto-crash was on May the 26th, but Poloniex took money from its customers on June the 6th. For 10 days, they had covered the loss. And I didn't even knew that the Clam crypto-crap had crashed. Then, suddenly, Poloniex changed its mind, and decided to make their customers pay.

[squatter]

Nobody has talked about it, but one thing is strange:

Clam's crypto-crash was on May the 26th, but Poloniex took money from its customers on June the 6th. For 10 days, they had covered the loss. And I didn't even knew that the Clam crypto-crap had crashed. Then, suddenly, Poloniex changed its mind, and decided to make their customers pay.

Good catch. I didn't even notice the dates.

They may have overestimated their ability to convince defaulted borrowers to pay up. A few poor saps probably deposited coins, but they probably switched gears once they realized the loss won't be recovered. This seems to be the extent of their legal threats to borrowers now:

All of the defaulted borrowers’ accounts were frozen after they defaulted and will remain frozen until they repay their loans and comply with Poloniex terms of service.

Good luck with that, Poloniex.

[countryfree]

All of the defaulted borrowers’ accounts were frozen after they defaulted and will remain frozen until they repay their loans and comply with Poloniex terms of service.

Good luck with that, Poloniex.

Poloniex has customers all over the world, if those who defaulted were in Russia or Lebanon, they will need more than luck...

[PrimeNumber7]

Based on the available public information, Poloniex is claiming there were 11,250 btc, approximately in outstanding margin loans on the day of the flash crash.

11,250 btc?
Source, please. It sounds crazy that such a minor crypto was so heavily traded...

But I think we've talked enough about what happened on May the 26th. What needs to be explained is what happened on Friday the 14th of June. I've described what happened to me on post #23, just above.

The 11,250 figure is based on the losses and how much was taken from your lending balance. The actual figure could be higher, but probably not lower, depending on mainly if they covered some of the losses.

On May 26, Poloniex suffered major losses. On June 14, Poloniex socialized these losses on lenders of BTC at the time. I can't say with authority why there was the long delay, or what happened in the meantime. I would speculate on May 26, Poloniex took over the loan clam positions from those with negative equity and held the position for three weeks. I think they were hoping the price would increase enough so they could offload the position either over time, or in an OTC trade at a high enough price so all loans could be repaid. Poloniex could have continued renewing BTC based loans to cover the short BTC position, and so lenders would not start withdrawing to other lending platforms. Once they saw the price of clam was not going to quickly go back up, they imposed losses on btc lenders.

If you did not have a BTC loan open as of May 26, you may have a valid cause of action. The reasoning for this is simple, you should not have to cover losses for loans that you did not have open at the time of the loss.

If some lenders were able to withdraw their coin from poloniex, and the percentage of your coins taken to cover the losses was higher because of this, you may have a valid cause of action for only your additional losses. This would not apply if Poloniex seized other assets from these accounts that withdrew to cover their portion of the losses based on their btc loans outstanding as of May 26.

[countryfree]

Alleluia!
Things are getting better.

The dates are as follows.

May 26th: 1,800 BTC loss for Poloniex because of the Clam crash.
June 6th: Poloniex covers its loss by seizing money from its customers.
June 14th: Poloniex has realized something went wrong, and it starts to reimburse its customers. I have about 10% back, and in an email, Poloniex wrote that "You can expect additional payments in the future."

It's great, great relief, even if I'm still waiting for the remaining 90%.

[PrimeNumber7]

June 14th: Poloniex has realized something went wrong, and it starts to reimburse its customers. I have about 10% back, and in an email, Poloniex wrote that "You can expect additional payments in the future."

It's great, great relief, even if I'm still waiting for the remaining 90%.

I am guessing Poloniex sent some kind of demand to customers who have negative equity to repay the negative equity and some customers repaid, totaling about 180 btc. Poloniex possibly has some kind of legal reserve in case some customers sue it in relation to this incident, and this risk would be removed once they repay all their lenders, so they may not need customers to repay 100% of their negative equity.

[Thirdspace]

Clam's crypto-crash was on May the 26th, but Poloniex took money from its customers on June the 6th. For 10 days, they had covered the loss. And I didn't even knew that the Clam crypto-crap had crashed. Then, suddenly, Poloniex changed its mind, and decided to make their customers pay.

I don't quite understand this, they have faulty lending system but make their customers pay the losses?
so was the clam price artificially pushed high to exploit this opportunity?
or it was just simply a coincidence sudden price crash caused this

[pooya87]

Another nail in the coffin for Poloniex. Circle must be really kicking themselves now for this acquisition.

the Circle team are probably the worst people in the whole world handling business. they have no idea what they are doing and in all these years they have not even gained smallest experience whatsoever. i remember a couple of years ago they even attacked bitcoin and blamed it for their failed business and losses! not to mention that Poloniex was once number one exchange before they were bought by Circle

[figmentofmyass]

Alleluia!
Things are getting better.

The dates are as follows.

May 26th: 1,800 BTC loss for Poloniex because of the Clam crash.
June 6th: Poloniex covers its loss by seizing money from its customers.
June 14th: Poloniex has realized something went wrong, and it starts to reimburse its customers. I have about 10% back, and in an email, Poloniex wrote that "You can expect additional payments in the future."

It's great, great relief, even if I'm still waiting for the remaining 90%.

glad to hear it. i was amazed they left lenders in the lurch and am glad to see they've seen the error of their ways. screw over your lenders like that and liquidity will suffer!

I don't quite understand this, they have faulty lending system but make their customers pay the losses?
so was the clam price artificially pushed high to exploit this opportunity?
or it was just simply a coincidence sudden price crash caused this

it was poloniex's fault, exacerbated by dumb borrowers margin longing shitcoins with no liquidity. they allowed buyers to build leveraged positions much larger than actual market liquidity could support. then came a flash crash that wiped everyone out. borrowers were heavily in default and poloniex refused to cover those losses. seems like they are changing their minds now.

[yefi]

not to mention that Poloniex was once number one exchange before they were bought by Circle

Polo went downhill before Circle jumped in. During the spring and summer of '17 with the influx of new user registrations, they completely went to pot. Trade engine was lagging, you couldn't get verified to get your money out, no response from CS for months if ever. It was this that lead to the exodus of OG traders.

[countryfree]

Thank you everyone for your support.
 

It's only a small victory, though. Poloniex has only reimbursed me 10%...But at the very least, with this they acknowledge that what they did was not correct.

[almightyruler]

Alleluia!
Things are getting better.

The dates are as follows.

May 26th: 1,800 BTC loss for Poloniex because of the Clam crash.
June 6th: Poloniex covers its loss by seizing money from its customers.
June 14th: Poloniex has realized something went wrong, and it starts to reimburse its customers. I have about 10% back, and in an email, Poloniex wrote that "You can expect additional payments in the future."

It's great, great relief, even if I'm still waiting for the remaining 90%.

Having lived through a few "socialised losses" over the years, I remain somewhat sceptical. That initial ~10% could represent the easiest funds to recover from overdrawn accounts, or perhaps a portion of Poloniex's reserves/operating funds.

At least they seem to be repaying in BTC - like for like - rather than some internal token which has its value fixed to the exchange rate on the day of the event.