The staggering collapse of Mantra, better known in the DeFi world by its token symbol OM, has sent shockwaves through the industry, causing analysts to question not only the future of the project, but also the precarious position of other DeFi platforms in light of the risks posed by low liquidity.
The Mantra catastrophe, which saw a loss of $5 billion of the token’s value, is currently under intense scrutiny by analysts. A recent report by Kaiko, published on Monday, April 14, has shed some light on the liquidity conditions that precipitated this crash.
According to Kaiko’s findings, the downfall was likely triggered by a combination of low liquidity and long liquidations, causing a sharp price drop that sent the market into free fall. The market depth plummeted from an initial $290 million to a meager $473,000.
In layman’s terms, the selling pressure was too great for the available buyers to counterbalance, resulting in a swift and catastrophic collapse. Adding fuel to the fire were the subsequent liquidations of long positions amounting to $21 million on OKX alone, which piled on additional selling pressure.
There is also speculation that insider involvement may have contributed to the crash. Kaiko’s report suggests a possibility of large insider sales, a theory echoed by several independent investigators. Max Brown, a blockchain investigator, posits that the team may have controlled 90% of the token supply, thereby artificially inflating its availability.
OddEyeResearch has also pointed fingers at potential market manipulation, citing large movements from Centralized Exchanges (CEXs) to unidentified wallets and vice versa, which it suspects to be Mantra’s own wallets.
The team at OddEyeResearch believes that the crash was triggered by a ‘betrayal’ by a group member, either through voluntary sale or forced liquidations, leading to panic selling under the low liquidity conditions.
Mantra CEO JP Mullin has attributed the collapse to forced CEX liquidations. However, as exchange transactions are not easily visible on-chain, investigators are unable to independently verify these claims.
Regardless of the causes, the harsh reality is that Mantra has been unable to recover its lost value. As of April 15, OM was trading at $0.8213, a modest recovery from its low of $0.4823 the previous day, but still a far cry from its last week’s high of $7.09, representing a 90% devaluation.
As this saga unfolds, it serves as a stark reminder of the potential pitfalls in the DeFi space, underscoring the need for transparency, accountability, and robust risk management mechanisms.
