Poloniex Goes Down, Users Lose Big
Over the course of 12 hours on May 9, the Poloniex digital asset exchange was intermittently inaccessible to users, causing quite a stir for traders and the greater community. According to their official Twitter account, the cause was a Distributed Denial of Service (DDoS) attack on the exchange, preventing users from logging on or making any trades. Exacerbating the issue was the fact that as the attacks occurred, a majority of the exchange’s assets fell dramatically, some taking overwhelming losses of up to 45 percent.
Big Losses In Digital Assets on Poloniex March 9th, During One of Several DDOS Attacks
While the cause for such losses remains unclear, a sharp rise in the price of bitcoin may take some of the blame, as assets on the exchange trade in an asset:bitcoin ratio. At the time bitcoin rose to a reach a brand new all time high, above $1700, but the reaction in assets seemed extreme against a 9 percent rise in bitcoin.
It should be noted that digital assets have risen steeply in the last 30 days, adding $25 billion in value to the overall booming market. And while a correction may have been necessary, the cause of the broadbased fall led by Poloniex remains unclear.
Poloniex is the among world’s largest digital asset exchanges, with millions of dollars in assets traded on May 9 alone. But the volatility seen on that date is not unique to this popular platform. Values on Poloniex also rise at breakneck speed, often causing traders to invest in overvalued assets. Over the years, this has raised concerns about the exchange and the validity of its trades, so that the questions have to be asked: Do the owners of Poloniex move these markets with intent? And if they have that power, do they move them with the intention of profiting for themselves?
Recently there have been warnings about Poloniex by respected members of the community. Just one day before the May 9th incident, Charlie Shrem, a founding member of the Bitcoin Foundation, spoke to an audience in Toronto, saying, “Poloniex is one of the biggest dangers to our ecosystem today.” And in lieu of the recent activity on the exchange, a California law firm has begun an investigation. In a May 10th press release, Berns Weiss LLP stated:
“Due to users’ inability to access their accounts because of the attacks, both Kraken and Poloniex exercised their discretion to liquidate users’ margin accounts. This action has led users to assert that they may have been the victims of market manipulation and possible insider trading. If the exchanges or individuals associated with the exchanges violated the law, then users who suffered losses as a result of those violations may bring a lawsuit to recover money damages.”
This was not the first time that Poloniex has had connectivity issues. In fact, DDoS attacks happen on the exchange regularly. On their official Twitter account, we can see seven tweets apologizing for downtime already this year.
Most likely, Poloniex will not compensate its users for their losses, as they have not done so in the past. And they are not the only player in these volatile markets. Chinese exchanges have long been accused of manipulating bitcoin, and in the end, China’s government stepped in to prevent malicious tactics. As a community, we have to take a look at this environment and ask: Why are we letting private exchanges dictate the value of assets? In an industry calling for decentralization of governments, media, and banks, why have we yet to see the rise of decentralized exchanges?