On Lighter, ARC Long Trader Lost 8.2M USDC

A major crypto trader on the decentralized derivatives platform Lighter lost approximately 8.2 million USDC due to a leveraged long position in the ARC detailed analysis perpetuals market. The trader built up the total open position in the ARC market to 50 million dollars over several days; it was taken by approximately 600 traders and market makers as counterparties.

LLP Strategies limit downside while still maintaining the upside. Source: Lighter

Around 18:00 ET on Wednesday, the position unwound due to a sudden drop in ARC price. A 2 million dollar portion was liquidated, and the remaining part was transferred to the Lighter Liquidity Provider pool (LLP). The platform managed the risk by triggering the auto-deleveraging (ADL) mechanism under the high-risk strategy; the LLP absorbed 200 million ARC (approximately 14.7 million dollars) at one point. This shows that ADL is a critical tool protecting liquidity providers.

Details of the ARC Perpetual Liquidation

• Position Size: 50 million dollar long, 600+ counterparties
• Loss: 8.2 million USDC for the trader
• LLP Impact: 200M ARC absorption, losses limited to 75 thousand $
• Winners: Short position holders made big profits

Liquidity provider losses were limited to 75 thousand dollars thanks to risk limits. After the incident, Lighter introduced a 40 million dollar open position limit for ARC futures, moved the pair to a capped liquidity strategy with 100 thousand USDC capital, and added automatic transition to ADL if it depletes. Similar limits may be extended to other assets.

Lighter ARC Incident Raises Manipulation Concerns

Manipulation risks on decentralized platforms have come to the fore; similar incidents occurred with Plasma (XPL) on Hyperliquid and wstUSR on Resupply in the past. This affects platform tokens like LIT detailed analysis.

Frequently Asked Questions About ARC

Why did the ARC liquidation lead to such a large loss?

The main reasons are the unwinding of the leveraged long position due to the price drop and the triggering of ADL.

What is Lighter LLP and how does it provide protection?

LLP is a pool that protects liquidity providers from downside risk while preserving the upside; it caps the losses.

What do the new position limits for ARC mean?

With the 40M$ limit, risk decreases, and stability increases in markets like HYPE futures.