Let's talk about why ALPACA surged 10 times and then crashed 40%.
Why did ALPACA surge 10 times?
This wave of alpaca's pump is due to delisting. We know that small-cap tokens are generally easy to pump, but why is no one pumping? Because even if it goes up, it can't be sold. So to avoid losing money on sales, there must at least be a contract.
If the contract trading volume and open interest are very low, and no one is playing, then the market maker cannot build sufficient chips at a low position or close enough chips at a high position. This is because closing long positions will lead to a price drop.
ALPACA created hype due to the delisting incident, leading many to short, which resulted in a large contract open interest. Therefore, the market maker can open many long positions and then pump the spot market, creating a price difference and earning fees. Here, a 2% fee every hour provides the market maker with unlimited funds to buy spot.
Furthermore, because delisting will automatically liquidate both long and short positions at the time of settlement, the market maker does not need to consider how to find exit liquidity. They only need to wait for liquidation at a high position.
So why did Alpaca flash crash 40% today?
Today, Binance adjusted the maximum leverage for Alpaca, and the effective time was exactly at 2:30 PM Beijing time. Isn't everything just so coincidental? Sometimes it’s these small factors that can trigger a chain reaction.
In fact, this time the margin adjustment for leverage is not as significant as the previous ACT adjustment. But it can still serve as a reason for the market maker to drive the price down.
