By Lucinda Shen
Updated: August 6, 2018 12:27 PM ET | Originally published: August 3, 2018

UPDATE: This article has been updated to reflect the amount to be clawed back from counterparties.

Some users of cryptocurrency exchange OKEx could be on the hook for millions in losses after a faulty bet from a single unnamed client.

On Tuesday, a futures trader amassed an “unusually” large futures stake worth about $416.9 million using both cash and leverage, betting on the rise of Bitcoin. But soon after, the value of the cryptocurrency fell below what the exchange considered safe, triggering OKEx’s automatic liquidation function on the user’s position. As a result, the trader was unable to repay the full extent of what he, she, or they had borrowed.

It’s well known that betting on margin is risky. And while OKEx appeared aware of that, it was unprepared for the magnitude of the loss. On Friday, OKEx revealed that it had added 2,500 Bitcoins, or $18.5 million worth, to its insurance fund. But that alone would not be enough to cover the shortfall.

As for the rest, the exchange plans to clawback from the position’s counterparties on the platform—or those who were set to make a winning from the unnamed client’s losses. It plans specifically to gather the funding from users who made a net profit across the contracts the unnamed client had bet on.

About 1,200 Bitcoins, worth $8.8 million as of Friday, were socialized among those who profited across those contracts. That represented a 17.7% clawback on for each of the traders.

“We will take a portion of the profit in equal percentage from all profited traders only to cover the difference between the liquidated price and settled price,” OKEx representatives wrote in a Friday post.

The Hong Kong-based exchange said the “unusually” large position was made on Tuesday, prompting OKEx to reach out to the client. They urged the user “several times” to lower the position in the hopes of reducing the risk to the overall market. But the user refused to comply. In response, OKEx froze the account shortly before the price of Bitcoin dropped, and the position automatically sold.

In response to the incident, OKEx said it would implement several new rules to prevent a reoccurrence. In one measure, the exchange plans to adopt a so-called scaling margin ratio, in which higher opening bids will require a higher down payment.

OKEx isn’t the only cryptocurrency firm that’s used this strategy of socializing losses. In August of 2016, Hong Kong-based exchange Bitfinex lost about $72 million in a cyberattack. It later decided to spread those losses out among users, while offering an “IOU” that it said was repaid as of early 2017.

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