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The exchange has pledged to compensate users who suffered losses due to the incident.
OKB, the native token of leading crypto exchange OKX plunged 50% in value today amidst a series of liquidations on leveraged trades on the platform. OKB dropped from around $52 down to $25 within minutes before recovering most of the losses, according to Chinese reporter Colin Wu.
OKX platform coin OKB suddenly fell sharply on the afternoon of January 23, UTC+8, from US$52 to a minimum of US$25, and then began to return to normal levels. The cause is currently unknown. https://t.co/7zIVNSdebx pic.twitter.com/k5BiYm2vKT
— Wu Blockchain (@WuBlockchain) January 23, 2024
The flash crash was triggered by declining cryptocurrency prices overall, which led to the liquidation of multiple large leverage positions on the exchange, according to a tweet from OKX. This then set off a domino effect of further liquidations of staked lending products, margin trades, and cross-currency transactions.
The steep drop in OKB’s price appears to have been exacerbated by over-leveraged positions and cascading liquidations rather than fundamental weaknesses in the token itself. OKX tweeted that it will fully compensate users for any additional losses incurred due to the abnormal liquidations.
Crypto exchanges like OKX enable traders to open positions larger than what their capital would normally allow by using leverage. However, leverage also comes with amplified risks – if prices move against overleveraged traders, exchanges will liquidate their positions rapidly to reduce risk exposure.
While leverage is a useful tool for advanced traders, events like today’s show how excessive leverage can have unintended effects on the market. OKX stated it will be optimizing features such as leverage tiers, risk control rules, and liquidation mechanisms to prevent the recurrence of such incidents.
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