Decentralized Platform Lighter Sees $50M OI Surge in ARC Battle

Lighter’s capped LLP model limited platform losses to $75K while a whale lost $8.2M during a $50M ARC open interest squeeze.

Decentralized derivatives platform Lighter faced a major stress event after a whale attempted to squeeze ARC longs. The activity unfolded publicly in an X thread, where the team described it as the first real test of its LLP strategies. Open interest surged to $50 million USDC as traders crowded into both sides of the market. 

Lighter Contains Risk as ARC Whale Position Unwinds

According to Lighter, a single trader built an oversized long position in ARC over several days. The position became large relative to the amount of ARC actually trading in the market. Around 600 other traders and market makers took the opposite side, meaning they were short.

Together, their trades pushed total open interest to roughly $50 million USDC. As the ARC price started to decline around 6 p.m. ET, liquidation pressure began. About $2 million USDC was closed out in the first wave of forced selling. Price weakness continued, prompting further reduction of the position.

After that, the remaining exposure was transferred to Lighter’s LLP system via auto-deleveraging (ADL). ARC perpetual contracts sit under Strategy 7 within LLP allocations. Strategy 7 had only $75,000 USDC allocated to it. Only that amount of pooled deposits faced risk if auto-deleveraging occurred.

During the first ADL event, LLP acquired more than 200 million ARC tokens. This was worth about $14.7 million at $0.072867 per share. For a short time, the position was profitable because the price stopped falling.

Losses continued until the $75,000 allocated to Strategy 7 was fully used. Once that limit was reached, a second ADL happened. At that point, the remaining exposure was passed to short traders at a lower price of $0.071123.

Because of how the system is designed, LLP could benefit if the price had bounced quickly. But its losses were limited to the $75,000 assigned to that strategy. In the end, LLP lost about $75,000. The large long trader lost around $8.2 million. Traders who were short and took the opposite side of the trade made a profit.

LIT Jumps 8.8% After $8.2M Whale Loss on Lighter

On-chain analyst Route 2 FI said the whale kept adding to the long position at a steady pace of about $360,000 every hour. The trader used a TWAP strategy, which spreads orders over time to avoid moving the price too quickly.

The analyst compared the situation to last year’s JellyJelly incident on Hyperliquid, in which a large position triggered heavy volatility and losses. In Lighter’s case, losses were limited because each strategy pool has a fixed cap. That prevented damage from spreading to all liquidity providers.

Short traders also earned strong returns during the drop. Funding rates rose sharply, and traders betting against the whale were earning around 5% per day, annualized. Those high returns attracted more short sellers, making it harder for the whale to push the price up.

According to CoinMarketCap, LIT was trading at $1.48 at the time of writing. The token was up 8.8% over the past 24 hours, with $51 million in trading volume. Price increases and strong volume suggest traders were not worried about the liquidation event. 

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