---
# System prepended metadata

title: 101 Derivative Market Manipulation

---

# 101 Derivative Market Manipulation

A short case study of market manipulation using derivatives.
In our scenario, A will offload a large holding of tokens, which the spot market cannot absorb.

- A and B both start with no positions on PIO or Binance
```
    -  Binance Orderbook[ Price: 100, Limit Sell : $1B  ] 
```
- A creates an RFQ to long $10B of SUSHI
- A Create a Limit Sell of $10B to sell his tokens
```
    -  Binance Orderbook[ Price: 100, Limit Sell : $11B  ] 
```
- B sends RFQ Response accepting the offer
- A sends on-chain PushQuote for $10B of SUSHI
- B calls AcceptQuote for that order
  - Recap: B has $10B Short SUSHI Exposure
```
    -  Binance Orderbook[ Price: 100, Limit Sell : $11B  ] 
```
- B buys $10B of SUSHI on Binance on A's Limit Sell
```
    -  Binance Orderbook[ Price: 100, Limit Sell : $1B  ] 
```
     
  - Recap: B has $0 Exposure
- A shorts $10B of SUSHI on Binance (Which pushes prices down)
- SUSHI goes down, causing A to be liquidated.
  - Recap: B has $10B long SUSHI exposure on Binance
```
    -  Orderbook[ Price: 100, Limit Buy : $1B  ] 
    -  Orderbook[ Price: 90, Limit Buy : $1B  ]
    -  Orderbook[ Price: 50, Limit Buy : $9B  ]
```
- B sells $10B of SUSHI on Binance
```
    -  Orderbook[ Price: 100, Limit Sell : $9B  ] 
    -  Orderbook[ Price: 100, Limit Buy : $0 ] 
    -  Orderbook[ Price: 90, Limit Buy : $1  ]
    -  Orderbook[ Price: 50, Limit Buy : $9B  ]
```
- B sold $1B at 100. Remains $9B to Sell
- B lower his limit price to match to next buyers at 90
```
    -  Orderbook[ Price: 100, Limit Sell : $9B  ] 
    -  Orderbook[ Price: 90, Limit Buy : $0  ]
    -  Orderbook[ Price: 50, Limit Buy : $9B  ]
```
- B sold $1B at 90. Remains $8B to Sell
- B lower his limit price to match to next buyers at 50
```
    -  Orderbook[ Price: 100, Limit Sell : $9B  ] 
    -  Orderbook[ Price: 90, Limit Buy : $0  ]
    -  Orderbook[ Price: 50, Limit Buy : $1B  ]
```
- B sold $8B at 50. Remains $0B to Sell
  - Recap: B has $0 Exposure


Key takeway : A open Longs on PIO, and becausee he knows B will buy in reaction to equilibrate his books, So A sells to B at that moment.

## Solutions : 
#### Case of non-manipulatin majority
* Onchain RFQ allows the MM to scan the user and define if the trade is likelly to be a market manipulation.
* Conservative collateral requirements to cover volatility.

#### Case of market manipulator majority ( smaller assets )
- CCPs for large traders where all market participants liquidity is bound to all CCPMs.