CEO John Jansen said Wednesday in an interview that the company has since fixed the flaw and is planning further improvements to avoid a repeat. Deribit, which specializes in futures and options contracts on bitcoin and other cryptocurrencies, sees customer satisfaction and loyalty as crucial elements of its plan to occupy a leading spot in the fast-growing industry, he said.
Deribit, the Amsterdam-based cryptocurrency exchange, is learning from last week’s $1.3 million mistake.
That’s how much Deribit agreed to reimburse customers after an Oct. 31 flash crash triggered by an error in the exchange’s system for pricing bitcoin futures contracts.
The company made a quick decision to reimburse harmed customers because it was “the right thing to do,” Jansen said, while acknowledging that the question might have been more fraught had the cost been higher.
“We really don’t want this to happen again,” Jansen said. “This was like an expensive or maybe a cheap wake-up call.”
In last week’s flash crash, futures prices on Deribit plunged quickly to $7,720 from $9,150 before bouncing back. The exchange quickly published a blog post on its website attributing the drop to a “bug in our system,” adding an apology and stating that some $1.3 million had been paid to reimburse customers.
Futures prices on Deribit are linked to an index that compiles prices from multiple exchanges, and the calculation went awry when two of those exchanges simultaneously went offline.
“This all happened in, like, one and half minutes,” Jansen said. “The blame is on us.”
Most customer complaints have subsided, he said, now that the reimbursements have been paid out, and some traders even profited from the incident.
“There were some users that had a handsome profit on this because we didn’t take any money back from them,” Jansen said. Some opportunistic customers even tried to use the incident as an opportunity to recover bona fide trading losses, he said:
“We had to draw the line at some point. There were also some users claiming back their losses off the whole day.”
It’s a fast-growing industry, and profitable, Jansen said, so the decision to reimburse wasn’t really a choice, he said.
Deribit is the world’s sixth-biggest exchange for trading bitcoin futures, well behind industry leaders BitMex and Huobi, according to data provider Skew.
Eventually, Jansen says, trading in crypto markets is likely to consolidate on a small number of exchanges, so the competition is fierce even in these early days for the industry.
“You always have to to treat your customers correct,” Jansen said. “There are always alternatives to go to.”
Greg Ciplaro, co-founder of the crypto-market analysis firm Digital Asset Research, said in a separate interview that he wasn’t surprised by Deribit’s reimbursement offer.
“They understand that this is a competitive market, there are high dollar stakes, and $1.3 million to make customers whole probably pales in comparison with the amount of revenue they make,” Cipolaro said.
Jansen says he’s the largest but not the majority shareholder of the closely held company, and he declined to disclose Deribit’s revenue from trading commissions. But the reimbursement cost was manageable, he said:
“This was, anyway, the right thing to do. But you also have to be able to do it, right?”