How Does Price Manipulation Risk Increase without a Mark Price System?
Without a stable mark price system, liquidations would rely on the last traded price. A malicious actor could use a small amount of capital to execute a large, temporary trade that artificially spikes or crashes the last traded price.
This manipulated price could then trigger mass liquidations, allowing the manipulator to profit at the expense of liquidated traders.
Glossar
Mark Price
Valuation ⎊ The Mark Price within cryptocurrency derivatives represents a fair value estimation, calculated to mitigate price manipulation and ensure orderly market functioning, particularly during periods of low liquidity or volatility.
Mark Price System
Derivation ⎊ The Mark Price System, within cryptocurrency derivatives exchanges, functions as a pricing mechanism intended to mitigate price manipulation and ensure fair valuation of perpetual contracts.
Price Manipulation Risk
Anonymity ⎊ Price manipulation risk in cryptocurrency, options, and derivatives is significantly amplified by the pseudonymous nature of many participants, hindering effective identification of manipulative actors.