A major cryptocurrency trader suffered an $8.2 million loss after a highly leveraged long position on the ARC (ARC) perpetuals market collapsed on the decentralized derivatives platform Lighter. The event, which unfolded on Wednesday evening ET, forced the exchange to activate its auto-deleveraging (ADL) mechanism to manage systemic risk.
The whale had built a massive long position over several days, pushing the total open interest in the ARC market to approximately $50 million. This position was matched by roughly 600 traders and market makers taking the opposing short side. The unwind began when ARC's price dropped sharply around 6:00 pm ET. About $2 million of the position was liquidated on the order book first.
The remaining exposure was moved into Lighter's Liquidity Provider Pool (LLP), specifically into a high-risk strategy category. When the LLP's capacity was strained—briefly absorbing about 200 million ARC tokens worth $14.7 million—the platform triggered ADL. This mechanism partially closed profitable short positions to safely unwind the whale's remaining long, a process designed to protect the platform's overall liquidity.
Despite the scale of the liquidation, losses for liquidity providers were contained. Due to Lighter's risk-bucket design, which isolates markets, only about $75,000 was lost from the LLP. The platform confirmed that short traders who bet against the whale were profitable. In response to the incident, Lighter implemented new safeguards for the ARC market, including a $40 million open interest cap and moving the pair to a capped liquidity strategy with about $100,000 in allocated USDC capital.
The event highlights ongoing concerns about price manipulation and risk management on decentralized trading platforms. Lighter framed the incident as the first real-world stress test of its LLP Strategies, stating they performed as designed to isolate risk.
