Extreme volatility has always been an issue for trading platforms. WOO X has been built to perform well under the most demanding circumstances, allowing traders to take advantage of volatile conditions. This is due to both the design of the infrastructure and the liquidity on the Wootrade network. Unlike many platforms, that rely completely on internal market makers and users to fill order books, Wootrade aggregates liquidity from multiple sources including:
- Mainstream exchanges
- Exchanges (clients) connected directly to the network
- Internal market makers (Kronos Research)
- WOO X Beta users
This multi-source approach to liquidity reduces the impact on a single point of failure — allowing the system to operate even under extreme conditions. This was largely true on May 19th, with the single exception being the WOO/USDT pair.
Analysis of the WOO/USDT volatility
At the time of the incident, there were 31 asset pairs trading on the Wootrade network. Of these 31, WOO is the least liquid, due to the fact that it is a relatively new asset that is only supported on one mainstream exchange. A secondary factor for its vulnerability was the number of users on WOO X Beta using their WOO tokens as collateral for margined positions (up to 2x). As prices began to drop on global markets, these positions grew in risk, and positions were closed or liquidated, causing WOO to be market sold on WOO X Beta in large quantities. Market makers began taking on large sell orders and hedging them on other venues.
At around 1 pm (UTC), with a price of 0.28253 WOO/USDT, the liquidations and sell volume on WOO X Beta caused the price of WOO to become dislocated from the price on other exchanges. This meant that the price could no longer be hedged to other venues, and WOO X’s own order books were unable to keep up with the liquidations and sell orders. The WOO X Beta liquidation engine continued to sell, pushing the price down to around 0.0001 WOO/USDT. This dislocation lasted for around 10 minutes, at which time the liquidations had ceased and the price returned to levels consistent on other exchanges.
Immediate response, the rollback, and incident data
With the price dislocated, withdrawals were temporarily closed. Under the advice of the technical engineers, management decided at 5:00 PM (UTC) to halt all trading on the network to review what had occurred and determine possible courses of action. The announcement was made, and users were given 30 minutes to adjust their positions before the platform went into maintenance mode.
To ensure the stability of the platform and the confidence from users, the WOO X team determined that a rollback was the correct solution based on the precedent set by other platforms, both in the cryptocurrency space and in traditional finance. Users that had buy orders under 0.28253 WOO/USDT were canceled. If a liquidation was executed under 0.28253 WOO/USDT, the price was modified to 0.28253. The same logic was applied to the internal liquidity providers who bought under 0.28253. In total, over 3.1m WOO was sold under this price point, with 1.3m WOO bought by users (the remaining 1.8m WOO was bought by liquidity providers). Rollbacks were completed by 11:10 PM (UTC), and the platform came back online.
A second issue caused by the rapid liquidations is that some users reported having negative balances. These negative balances will be removed from the system, and after the next system update, measures will be implemented to prevent user balances from dropping into the negatives. In total, around $246,000 will be used to cover this accounting error.
Gauging the impact
The scale of this incident was limited to: Only 6 users purchased WOO below the 0.28253 price. Since these users had their transactions reversed, they will be eligible for a bug bounty, which will be distributed in the future.
On the sell side, 22 users sold below the 0.28253 WOO/USDT price due to liquidation. No users on WOO X Beta sold below that point voluntarily.
Future preventative measures
WOO X Beta is currently working on an updated version of Margin(V2), which includes a few preventative measures:
- Haircuts: A reduction applied to the value of an asset for margin collateral purposes, based on factors like liquidity and volatility. Users will not be able to borrow as much on highly volatile assets.
- Position limits: Limits on the amount of position based on leverage that users can take to prevent over-leveraged positions.
- Zero balance limits: Accounting measures will be placed to ensure that user accounts can't drop below zero in the event of liquidation.
Margin(V2) will be implemented at the end of June, ahead of the next product release. In the meantime, to prevent further incidents, leveraged trading will be temporarily halted on WOO X Beta. This change will take effect at 12:00 PM (UTC) on May 20th.
Along with Wootrade management, the WOO X team is committed to providing traders the most robust infrastructure to use for their trading needs. With that in mind, the WOO X team must take full responsibility for the design choices that failed to recognize the price dislocation and continued to liquidate at unreasonable prices. Wootrade will continue to assess how they can improve, including technical infrastructure, transparency, management processes, communication strategies, crisis controls, and other elements of operations.
The Wootrade team is grateful for the patience and resiliency of the community and WOO X users, who waited as the tech team and management teams combined to resolve this incident. Wootrade will strive to make its products more robust for the benefit of traders, and as always, welcomes feedback from the greater cryptocurrency community.
If users have any questions regarding the status of their accounts or balances, please contact [email protected].
The Wootrade Network combines global liquidity and top market-makers to provide ultimate liquidity for exchanges, wallets, DeFi platforms, and large traders. Wootrade was founded by Kronos Research, one of the top market makers and quantitative trading firms in the world, which process more than $5 billion in trading volume per day. Wootrade is building a diverse product set that touches both CeFi and DeFi verticals, including first-party trading platform WOO X, pricing oracles, investment products, social trading, and other functionality that will augment use cases for the WOO token.