- LLP exposure capped at $75K even as ARC open interest surged to nearly $50M USDC.
- Auto-deleveraging mechanism shifted risk, leaving the large long trader with an $8.2M loss.
- Lighter added a $40M OI cap and moved ARC to a capped liquidity strategy with $100K allocation.
Lighter, a decentralized perpetual futures trading platform, reported that its liquidity protection system was tested during a market move involving the ARC perpetual contract, resulting in an $8.2 million loss for a single trader while limiting losses to its liquidity pool.
According to a series of posts published by the platform, a trader accumulated a large long position in ARC over several days, eventually pushing total open interest in the market to approximately $50 million USDC. Roughly 600 other traders and market makers took the opposite side of the position.
Large ARC Position Triggers Liquidation and ADL
The ARC perpetual contract was assigned to what Lighter refers to as “strategy 7,” which had $75,000 USDC allocated to it. The platform stated that this allocation represented the maximum exposure from its liquidity provider pool (LLP) deposits under that strategy.
As ARC’s price declined around 6 p.m. ET, the trader’s long position was first liquidated through the order book for approximately $2 million USDC. As the decline continued, the account was deleveraged to the LLP and transferred into strategy 7.
During the auto-deleveraging (ADL) process, LLP assumed control of 200 million ARC tokens, valued at about $14.7 million at $0.072867 per token. The platform reported that the LLP position initially showed unrealized gains.
However, when the price fell further, and the $75,000 allocated to strategy 7 was depleted, another ADL event was activated. In that second round, short positions were matched against LLP at $0.071123.
Lighter stated that the long trader ultimately lost around $8.2 million USDC, while LLP’s loss was limited to $75,000. Traders holding short positions against the large long position recorded profits.
New Safeguards Introduced
Following the incident, Lighter implemented additional risk controls. In a notice published on its website, the platform said it introduced a $40 million open interest cap for the ARC market. The trading pair was also moved under a capped liquidity strategy with approximately $100,000 USDC in allocated capital.
The event occurred under heightened scrutiny of price movements on decentralized trading platforms. In August last year, four large traders were accused of manipulating the price of Plasma (XPL) on Hyperliquid after the token surged about 200% to above $1.80 within minutes.
In June, the DeFi protocol Resupply experienced a security breach in its wstUSR market, resulting in roughly $9.6 million in losses after an attacker manipulated prices via its integration with the synthetic stablecoin cvcrvUSD.
Related: Lighter’s LIT Token Launch Sparks Debate Over 50-50 Split
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