How Retail Investors Are 'Cut' Clean
The funding rate mechanism of ALPACA has become a 'weapon' for the main players to harvest retail investors. Simply put, the funding rate is the fee paid by both long and short positions in the contract market to balance their positions. When short positions dominate, shorts must pay fees to longs. In the ALPACA incident, the exchange shortened the funding rate settlement period to 1 hour, and the rate reached as high as -2%, meaning shorts were 'cut' every hour with no ability to fight back.
Specific operation process:
April 24: Binance announced delisting, ALPACA only dropped 20%, retail investors misjudged the market, and a large number of shorts were taken, with the short ratio rapidly rising to 75%.
Main players pumped the price: within 1 hour, the price doubled, and shorts not only faced liquidation but also had to pay high funding rates. Taking a $100,000 short position as an example, $2,000 must be paid every hour, leading to a daily loss of up to $48,000.
Double blow: The main players controlled the spot market to drive up prices, and shorts suffered dual losses from liquidation and rates, leaving them powerless to recover.
This design of settling every hour with a rate as high as -2% leaves retail investors with no response time, and their funds are quickly drained. The main players earn a fortune from liquidation profits and funding rate income, while the exchange's act of shortening the settlement period raises suspicions of a tacit understanding with the main players and project parties.
