Could a 51% Attack on a Smaller Coin Trigger Margin Calls on a Larger, Interconnected Exchange? ⎊ Path

Could a 51% Attack on a Smaller Coin Trigger Margin Calls on a Larger, Interconnected Exchange?

Yes, it is possible. If the smaller coin is used as collateral for margin trading on an exchange, a successful 51% attack would likely cause its price to crash violently.

This sudden devaluation of the collateral would decrease the value of traders' margin accounts. If the account value drops below the maintenance margin requirement, the exchange will issue a margin call, forcing the trader to add more funds or sell their assets.

If this happens on a large enough scale, it could lead to a cascade of forced liquidations, potentially affecting the prices of larger assets like Bitcoin or Ethereum if they are sold off to cover the margin calls.

What Is a “Liquidation Cascade” and How Does High Margin Prevent It?

How Does a Liquidation Cascade Amplify Market Volatility?

Can Cross-Margining in DeFi Create a Systemic Risk for the Entire Cryptocurrency Ecosystem?

How Do Margin Calls and Liquidations Cascade across Different Derivatives Platforms during a De-Pegging Event?

Could a Vulnerability in a Major DeFi Lending Protocol’s Smart Contract Trigger a Market-Wide Death Spiral?

What Is the Role of Margin Calls in Accelerating a Death Spiral in Derivatives Trading?

How Can a “Flash Crash” in One Market Trigger a Liquidation Cascade in a Seemingly Unrelated Derivative Product?

Explain the Mechanism of a Liquidation Cascade Triggered by a Stablecoin’s Loss of Collateral Value

Glossar

Exchange Insurance Funds

Fund ⎊ Exchange Insurance Funds (EIF) represent a specialized mechanism within cryptocurrency derivatives markets, primarily options and perpetual futures, designed to mitigate systemic risk arising from counterparty defaults or exchange failures.