Crypto Whale Suffers $8.2M Loss in Failed ARC Market Liquidity Squeeze on Lighter Platform
Approximately $8.2 million was lost by a cryptocurrency whale following the liquidation of an ARC perpetuals position valued at $50 million on the Lighter platform. Through its segmented liquidity architecture and auto-deleveraging mechanisms, the exchange successfully contained losses for liquidity providers.
Approximately $8.2 million in losses were sustained by a major cryptocurrency trader following the collapse of a highly leveraged position in the ARC perpetuals market on Lighter, a decentralized derivatives exchange. The incident forced the platform to utilize its backstop liquidity reserves and implement auto-deleveraging protocols to effectively manage systemic risk exposure.
According to a series of statements published on X, the platform detailed how the whale had accumulated an exceptionally large long position over multiple days, which drove the total open interest in the ARC (ARC) market to approximately $50 million. Meanwhile, around 600 traders and market makers positioned themselves on the opposite side of this trade.
The position started to unwind when the price of ARC experienced a decline at approximately 6:00 pm ET on Wednesday evening. Approximately $2 million worth of the position underwent liquidation through the order book mechanism, while the balance of the position was transferred into Lighter's liquidity provider pool (LLP), where it fell under management within a high-risk strategy classification.
Subsequently, the platform implemented auto-deleveraging (ADL) procedures, which resulted in partial closures of some profitable short positions held by traders, enabling the system to safely dismantle the problematic position. During peak exposure, the LLP temporarily held approximately 200 million ARC tokens, representing a value of roughly $14.7 million, before the position underwent further reduction as price deterioration continued.
Risk caps limit LP losses to $75,000
Despite the magnitude of the liquidation event, liquidity providers experienced minimal losses. According to Lighter's statement, approximately $75,000 in losses were incurred, as the ARC market operated within an isolated risk bucket structure rather than exposing the platform's entire liquidity pool to potential losses. Meanwhile, short position holders who bet against the whale's position achieved profitability.
In the end, the big long trader lost around 8.2M USDC, LLP lost 75k, and the short traders who took the risk of betting against this position were profitable.
Lighter
In response to the incident, Lighter implemented additional protective measures for the market. Through a pop-up notification displayed on its website, the platform announced the introduction of a $40 million open interest cap specific to ARC trading and relocated the trading pair under a capped liquidity strategy framework with approximately $100,000 USDC in designated capital allocation. Should this liquidity threshold become depleted, the system is now configured to automatically shift to ADL mechanisms to eliminate risk exposure.
The platform also indicated that comparable restrictions might be implemented across other digital assets.
Manipulation concerns on decentralized platforms
This event unfolds against a backdrop of growing concerns regarding price manipulation activities on decentralized trading venues. Last August, four whale traders faced accusations of manipulating the Plasma (XPL) token price on the Hyperliquid platform after the digital asset experienced an approximately 200% surge, climbing to above $1.80 within a matter of minutes.
Additionally in June, the DeFi protocol Resupply experienced a security compromise affecting its wstUSR market, which resulted in approximately $9.6 million in losses after a malicious actor exploited price manipulation vulnerabilities through the protocol's integration with the synthetic stablecoin cvcrvUSD.