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Kraken flash crash liquidates Nexo holdings


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When Bitcoin took that huge dip this morning, Kraken had an ETH flash crash down to $700. People who were using ETH as collateral for Nexo loans got liquidated, selling their ETH for like half the overall market price (I think it went down to around $1500). Nexo claims they're going to make it right, we'll see.

With the FTSO being such an integral part of the upcoming Flare Network, this makes you think about how important good oracles are. Flares's system should prevent something like this from happening, but are there other ways it could go wrong?

This also brings up something I hadn't really thought about in the DeFi vs. CeFi debate here. Is CeFi actually better here, assuming Nexo eats the losses and gives it's customers their funds back? If this happens on a DeFi platform, everyone is screwed, right? The contract ran how it was supposed to even if that's not how humans would expect it to act. Could anything be done if these loans were being managed entirely by smart contract?

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When Bitcoin took that huge dip this morning, Kraken had an ETH flash crash down to $700. People who were using ETH as collateral for Nexo loans got liquidated, selling their ETH for like half the ove

10 hours ago, brianwalden said:

When Bitcoin took that huge dip this morning, Kraken had an ETH flash crash down to $700. People who were using ETH as collateral for Nexo loans got liquidated, selling their ETH for like half the overall market price (I think it went down to around $1500). Nexo claims they're going to make it right, we'll see.

I don't understand how the system works so forgive me if this is a stupid question but isn't a case like this exactly why there actually is risk attached to putting your assets up for collateral? For example, if you put FLR up for F-asset collateral you need to manage the levels right? Otherwise you will be liquidated. Were these people under the impression that the levels would be monitored and changed for them by the system and that didn't happen?

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Yes, you need to monitor the levels. There is a degree of risk to everything. I think this case is an example of a bad data oracle. I think most people would agree that the market price of ETH did not actually go down to $700, that was just on one exchange. The price of one exchange alone shouldn't have triggered the liquidation. I think people who were so overly leveraged that they got liquidated at $1500 to pay for the loan would have agreed that that was fair. Then again, the constraints of the system try to prevent you from being that leveraged.

I don't think there will be much risk of losing FLR that you put up for F-asset creation, but that will all depend on the details of how it actually works.

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