Binance BTC Flash Crash | Why DIA is needed more than ever

Only a few weeks a go we reported on BInDeribit and the flash crash their service experienced. On the 4th of December Binance suffered the same fate with their BTC/USDS pair crashing below 700$ triggered by a sell order of only 8 BTC equivalent to ~60.000$ at the time of the incident.

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Binance BTC Flash Crash | Why DIA is needed more than ever

The sudden drop however wasn’t the result of a bug or a faulty index calculation but instead a product of the barely liquid stable coin itself. Thus this crash could have been prevented if the coin would have had a wider orderbook which could have dealt with the sell order. The incident underlines a trend many participants of the ecosystem already mentioned: Flash crashes in crypto happenAll the time.

The BTC/USDS pair on Binance (TradingView)
The BTC/USDS pair on Binance (TradingView)

Flash crashes are a problem for the ecosystem

The crypto economy is still in an early stage and especially relies on trust put into the ecosystem to thrive. Let’s suppose a Bitcoin index was built on top of a few different BTC pairs, including Binance’s BTC/USDS pair. The index would have factored the drop in, moving it more or less noticeably, depending on the weighting.

People who put their money into a product built on top of that index could have had their stop loss orders triggered, initiating a stop run which would have further amplified the effect. An incident like this could scare many customers of said products away, especially the new & inexperienced ones. But if newer actors run away, how will the ecosystem ever gain traction?
This is why we need proper outlier cleaned indices.

DIA mitigates crashes

DIAs outlier cleaned index of the Bitcoin price in comparison didn’t show any resembling action on the 5th of December. It is crucial for frequently traded products to rely on a secure source for the price of its underlying asset and DIA provides exactly that.

DIA’s cleaned BTC index over the same timeframe

By crowd-sourcing exchange data and incorporating it into our indices we are capable of building a uniquely diversified portfolio of underlyings. By combining this with our cleaning mechanism, DIA’s indices are virtually immune to outliers and always represents the actual value its asset is worth.

Implications of the crash

While the crash on Binance specifically couldn’t have been prevented with this method, it displays once again what kind of market movements cryptocurrencies have to deal with and what challenges are upon the ecosystem to eventually gain mainstream adoption. At DIA we are trying to supplement the process by delivering a truly open-source method to gather vast amounts of information and supply trustworthy financial data to benchmark providers.

Flash crashes happen but we are on a mission to mitigate every single one of them. Join us at DIA on our journey to make financial data more accessible than ever before by contributing to the first truly open-source dataset the ecosystem has ever seen.

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