Annualized fee rate of 2100%! In-depth analysis of Lighter platform ARC contract long and short battles and the pin event

In late February 2026, the decentralized derivatives trading platform Lighter became a focal point of market attention. Its BTC perpetual contracts experienced a sudden “spike” with a rapid plunge, while the perpetual contract funding rate for another token, ARC, soared to an astonishing annualized 2100%. This chain of events was not an isolated technical glitch but a clear illustration of how whale behavior can leverage low liquidity environments on order book DEXs to trigger market swings and chain reactions.

Background and Timeline

The volatility on the Lighter platform was primarily driven by two interconnected but distinct events.

Early morning of February 26 (UTC+8): The price of BTC perpetual contracts on Lighter plummeted from around $68,000 to $47,510 in a very short period, forming a long lower shadow. The price then quickly rebounded to normal levels.

Shortly after the event: Lighter officials responded in the Discord community, stating that the spike was not due to a platform bug or hacking. The cause was a whale (or market maker) executing a large market sell order of about 1,000 BTC in a low-liquidity environment. This massive sell order instantly consumed all available buy orders on the order book, causing the price to be pushed to an extreme in a “liquidity vacuum.”

Almost simultaneously: On-chain analysis by market monitoring account @Route2FI revealed that a whale held a long position worth up to $24 million in ARC tokens on Lighter and was adding to this position via TWAP (Time-Weighted Average Price) strategy, increasing by $360,000 worth of ARC per hour to push the bullish trend. The whale was already sitting on a $5 million unrealized profit.

As of February 26: Due to this whale’s continued long positions, the funding rate for ARC perpetual contracts on Lighter skyrocketed to an annualized 2,100%. This means traders providing short liquidity could earn about 5.7% of their position value daily.

Data and Structural Analysis: Causes of Low Liquidity and Extreme Rates

Combining these events reveals the root cause: Lighter’s market structure as an order book DEX.

First, the BTC spike illustrates the direct impact of liquidity depth. Unlike centralized exchanges (CEXs) with deep liquidity pools, emerging DEXs have limited order book depth. A market sell of 1,000 BTC (worth roughly $68 million) can instantly break through all protective buy orders, causing a temporary failure of the price discovery mechanism. This is not manipulation but a physical consequence of low liquidity environments and large trades.

Second, the exorbitant ARC funding rate reflects an extreme imbalance of long and short forces. Funding rates are used in perpetual markets to anchor the spot price. When bullish sentiment dominates, the rate is positive, and longs pay shorts. An annualized rate of 2,100% means longs are paying a very high cost to hold their positions, implying they expect the price to increase several times in the short term to justify the cost.

Public Opinion and Divergent Views

Market commentary mainly splits into two camps, centered on interpreting the whale’s intent.

Mainstream view sees this as a “JellyJelly event” repeat: In March 2025, a whale on Hyperliquid manipulated JELLY spot prices to trigger massive losses in perpetual contracts, causing liquidity pool (HLP) losses. The current whale activity in ARC resembles this: continuously buying to push up the price, creating extremely high funding rates, and enticing hedge funds or retail investors to short. Once short positions reach a certain level, the whale might leverage its position to further push the price higher or drain liquidity, forcing shorts to liquidate at high levels.

Another perspective suggests this could simply be a high-risk long strategy: The whale might be very bullish on ARC’s fundamentals, willing to pay high funding rates for long-term positioning. Its hourly TWAP accumulation strategy aims to reduce market impact, resembling institutional-style building rather than a deliberate short squeeze.

Industry Impact and Reflection

The Lighter incident serves as a wake-up call for the entire decentralized derivatives sector, potentially prompting deeper industry reflection.

Design challenges for order book DEXs: The event exposes the fragility of pure order book models under whale pressure. Developing more robust liquidity mechanisms—such as incentivizing market makers or adopting hybrid liquidity pools—will be key to competitiveness. Lighter’s previous launches of perpetual contracts for stocks like Samsung and Hyundai, attempting to bring traditional assets into DeFi, are part of this effort.

Trader risk education: The 2,100% annualized funding rate is a double-edged sword. While it offers near risk-free high returns for shorts, it also entails significant liquidation risk. The event underscores the importance for traders to understand not just price volatility but also funding rates, position concentration, and platform liquidation and reduction mechanisms.

Potential regulatory attention: Although on-chain, such highly manipulative whale strategies could attract regulatory scrutiny over market manipulation and fairness in DeFi.

Possible Evolution Scenarios

Based on current conditions, the long-short battle in ARC could evolve along several paths:

Scenario 1: Whale actively closes positions, causing a double liquidation (higher probability)

As more shorts are attracted by high funding rates, the whale may find it unsustainable to push the price higher to trigger more liquidations. To avoid paying ongoing high funding costs, the whale might start unwinding its longs massively. This could cause a sharp drop in ARC’s price, triggering long liquidations and possibly forcing the whale to liquidate some shorts as well, resulting in a chaotic multi-directional cascade.

Scenario 2: Whale pushes the price higher, causing shorts to liquidate (medium probability)

If the whale’s capital exceeds expectations and FOMO (Fear of Missing Out) spreads, more long positions may enter, pushing the price further up. This could lead to margin calls and liquidations among short traders, fueling a further rally and allowing the whale to profit from its long positions.

Scenario 3: Systemic risk triggers chain liquidations via ADL (lower probability but high impact)

In a sudden extreme market move (e.g., BTC crashes), ARC’s price could become highly volatile, triggering widespread stop-losses and ADL (Auto-Deleveraging) mechanisms. Given the whale’s large holdings, it might be forced to reduce positions at unfavorable prices, exacerbating market chaos.

Conclusion

The BTC spike and ARC’s sky-high funding rate on Lighter resemble a carefully orchestrated stress test, exposing deep structural risks in on-chain derivatives markets. This is not just a whale vs. retail game but a critical examination of order book DEX design and risk management. For traders, while chasing high funding rate yields can be tempting, they must recognize that behind the allure lies a complex game with strategic opponents. In the deep, illiquid waters, every ripple may be the prelude to a tidal wave.