(Bloomberg) -- The crypto industry learned an expensive lesson this week when a Korean chip manufacturer's shares suddenly dropped.
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At the start of trading in Seoul on Tuesday, SK Hynix Inc. shares slumped 30% below their closing price the night before, the result of a single share changing hands in the pre-market session at what appears to have been a rogue price. While subsequent trades were significantly higher, they came too late for a set of traders operating in an alternative world outside of public markets.
Holders of a derivative contract tied to SK Hynix's shares that trades on the crypto exchange Hyperliquid were forced to close nearly $60 million in long positions within two minutes as the contract's price dropped by roughly 20%, according to Allium, a blockchain data platform. Allium estimates the incident resulted in $17.4 million of realized losses among more than 900 users.
In a statement, Trade.xyz, the developer of the contract, said it will "cover liquidation losses attributable to the anomalous portion of the move."
"While the system performed as designed, users are understandably upset about liquidations that were triggered," it said. "Going forward, our pricing systems will be further improved to handle tail events."
The episode shows a structural tension in one of crypto's fastest-growing products, known as perpetual futures, or perps. They are derivatives that offer leveraged exposure around the clock, even for assets that don't trade in crypto's 24/7 manner. Both traditional and digital finance companies are trying to bring more assets onto blockchain payments rails in that manner — from stocks to Treasury bonds to commodities.
'Blackjack Table'
"Perpetual users aren't in the underlying market, betting in the official casino," said Jordi Alexander, founder of digital-asset fund Selini Capital. "They're the people standing around the blackjack table, betting with each other on what might happen at the table."
The liquidation event raises the question of whether an on-chain price feed should simply mirror all trades, even possible fat-fingered ones, or reject any outliers.
"Typically, most exchanges use multiple pricing sources, so if this was just using one pricing source then it could be very problematic," said Tian Zeng, chief executive officer of crypto hedge fund Third Eye. Even if several pricing sources are used and one has issues, "it can still cause some liquidations given how levered some of these traders are," he said.