Bybit SERAPH Spot-Futures Price Disparity of 10x, Arbitrage Strategy Collective Liquidation Losses Exceed $17 Million: Who Is to Blame?

Dear Bybit Team and CEO Mr. Ben Zhou,

I am a loyal user of the Bybit platform, relying on spot-futures arbitrage trading to generate profits. However, during the abnormal price event of the SERAPHUSDT U-margin perpetual contract around 20:23 UTC on October 6, 2025, I suffered devastating liquidation losses. I’ve learned that many prominent arbitrage traders were also affected, with total liquidation losses exceeding $17 million, and individual losses reaching as high as several million dollars. This incident not only caused significant financial losses but also shook the confidence of numerous traders in the Bybit platform. With a heavy heart, I write this letter to urge you to address my concerns and promote platform improvements to protect ordinary users like myself, ensuring that spot-futures arbitrage strategies can continue to operate normally on Bybit.

Incident Overview: A Ten-Minute Crisis from Pump to Liquidation

Before the Incident (Before 20:00 UTC)

The SERAPH/USDT perpetual contract price was stable in the 0.26–0.3526 USDT range, with low trading volume and limited order book depth.

The spot market price fluctuated in sync, around 0.3–0.4 USDT, with similarly weak liquidity but no obvious anomalies.

Market sentiment was calm, with no major news or on-chain activities (e.g., NFT minting or game updates) driving SERAPH’s price.

Price Surge (20:00–20:22 UTC)

The perpetual contract price skyrocketed from 0.3526 USDT to 2.3712 USDT, a surge of approximately 572%.

The spot market price only rose moderately to 0.6 USDT before falling back to 0.1945 USDT (a rise of about 70%), failing to keep up with the extreme futures market volatility, resulting in a spot-futures price disparity of up to 10x (2.3712 / 0.24 ≈ 10).

Bybit’s mark price, based on an internal index, failed to reflect the spot market in a timely manner, accelerating liquidations.

Price Crash (20:23–20:30 UTC)

After the surge, the price plummeted 95% within seconds to a low of 0.08 USDT, then rebounded to around 0.5 USDT. The spot market price saw a mild pullback but with far less volatility, remaining in the 0.4–0.6 USDT range.

Liquidation losses exceeded $17 million, severely impacting retail traders and algorithmic arbitrageurs. Users on the X platform reported individual losses as high as $2.5 million.

Data Summary

Perpetual Contract: Price moved from 0.3526 → 2.3712 → 0.08 USDT (within 8 minutes).

Spot Price: 0.3 → 0.6 → 0.1 USDT.

Peak Price Disparity: Futures/Spot ≈ 10:1.

Loss Scale: Liquidations exceeded $17 million, affecting thousands of users.

Core Demands and Optimization Suggestions

Fair pricing is the cornerstone of the derivatives market, and this 10x price disparity exposed vulnerabilities in Bybit’s pricing mechanism. As an affected user, I earnestly request that Bybit and Mr. Ben Zhou consider the following demands:

1. Compensate Liquidation Losses

This incident stemmed from deficiencies in the platform’s liquidity management and risk control, not from user errors. My arbitrage strategy was based on the reasonable expectation of price convergence, yet it collapsed entirely due to the platform’s failure to intervene in time (e.g., through circuit breakers or price anchoring). I urge Bybit to establish an “Incident Compensation Fund” to compensate affected users for their liquidation losses. This would not only mitigate our losses but also demonstrate Bybit’s responsibility to users and rebuild market trust.

2. Optimize Platform Vulnerabilities to Ensure Safe Arbitrage Trading

Spot-futures arbitrage is a core strategy in the crypto derivatives market and should be protected. To prevent similar incidents, I strongly recommend that Bybit implement the following improvements to provide peace of mind for users relying on low-risk strategies:

-Introduce Multi-Source Price Oracles: Relying on a single index price or excessive weighting of a single index makes it prone to manipulation. Integrate decentralized oracles like Chainlink or Pyth to aggregate spot data from multiple exchanges, ensuring the mark price reflects the true market. For example, if the deviation exceeds 10%, automatically switch to oracle pricing.

-Implement Dynamic Circuit Breakers: Set price fluctuation thresholds (e.g., 10% or 20%). If exceeded, pause mark price updates or trading for 5 minutes to prevent cascading liquidations, drawing inspiration from traditional finance (e.g., CME circuit breakers).

-Enforce Liquidity Standards: For low-market-cap tokens like SERAPH, mandate a minimum order book depth (e.g., $1 million) and require platform market makers to inject limit orders during low-liquidity periods.

-Optimize Liquidation Mechanisms: Adjust mark price calculations to include greater spot market weighting, slowing liquidation speed. Introduce “phased liquidations” to prioritize high-risk positions.

-User Protection Tools: Provide real-time liquidity indicators and “volatility warning” APIs, mandate risk education for high-leverage users, and develop an “auto-stop-loss” plugin to reduce slippage losses.

Latest Developments

1. On October 7, Bybit adjusted the “maximum position size” for the SERAPHUSDT U-margin perpetual contract, effective at 21:00 UTC on October 6.

2. On October 8, Bybit’s official response attributed the incident to “reduced liquidity” rather than a technical failure and promised to review affected users’ cases individually.

Closing Remarks

Mr. Ben Zhou, as Bybit’s leader, you have repeatedly stated your commitment to building a safe and transparent trading environment. I believe Bybit has the capability to learn from this incident and become an industry benchmark. I, along with many users on the X platform (#BybitFixLiquidity), look forward to the platform taking responsibility, protecting ordinary traders, and revitalizing low-risk strategies like spot-futures arbitrage. I am willing to provide trading records to assist in the investigation and eagerly await your response. Thank you for taking the time to read this letter, and I hope Bybit will take concrete actions to rebuild our trust.