Between 00:05 and 00:17 Taiwan time on February 8th, the prices of BTC and ETH on Binance suddenly experienced abnormal fluctuations of 1-3%, resulting in multiple candlestick patterns known as "long-legged doji." It is currently speculated that an error occurred in a grid trading program run by a market maker on Bybit, resulting in a loss of $100-200 million. The price quotes on Bybit were transmitted to the Binance trading market through cross-exchange arbitrage by a third-party market maker.
Equation News Vida: A market maker glitch on Bybit caused $100-200 million in losses.
Regarding this incident, Vida, founder of Equation News, believes that a market maker's grid program on Bybit malfunctioned, resulting in a loss of $100-200 million. This is because other exchanges currently have contract trading volumes of around $1 billion, while Bybit's was $19 billion at the time. Secondly, Bybit's current volatility is about 3-5%, significantly higher than the 1-3% of other exchanges. However, Binance, OKX, and Bybit generally do not directly engage in market making, so theoretically, the loss should be attributed to the third-party market maker.
Cross-exchange arbitrage transmits mispricing to other markets.
Some readers may be confused as to why abnormal fluctuations on a single exchange would further affect prices on other platforms. The author adds that the following assumes that Vida's speculation that "a certain Bybit market maker grid program malfunctioned" is true.
The key point is that current liquidity in the crypto market is not independent of individual exchanges, but rather dominated by third-party market makers operating across multiple exchanges. These market makers typically reference price sources from multiple major exchanges when setting prices, for example:
- 1/3 from Binance
- 1/3 from OKX
- 1/3 from Bybit
Based on this, a comprehensive fair price is calculated, and then orders are simultaneously placed with various exchanges. When Bybit's price deviates from the market due to an anomaly in a certain market-making strategy, the problem is no longer limited to a single platform but will propagate outwards through the following mechanisms:
- First layer: Index price is driven: If the market maker's price model includes Bybit quotes, abnormal fluctuations in Bybit will directly affect the fair price calculated internally.
- The second layer: cross-platform synchronized pricing: Market makers typically provide liquidity on multiple exchanges simultaneously. Once their model determines a market price change, they will adjust their order prices simultaneously on platforms such as Binance and OKX.
- The third layer: Arbitrage mechanism amplifies and transmits: Other quantitative trading and arbitrage institutions will observe the price differences between exchanges and quickly pull the price back to a consensus through cross-exchange arbitrage trading, further spreading Bybit's volatility to the overall market.
If a major source of liquidity experiences an anomaly, price shocks can spread to the entire market in a short period of time through market making and arbitrage chains.
This article, "Binance ETH Experiences Abnormal Fluctuations of 3-5%, Analyzing How Cross-Market Arbitrage Transmits Mispricing," first appeared on ABMedia, a ABMedia .
