Crypto’s Most Violent Flash Crash Yet
Irrational Exuberance: Some Pegs May Detach in Flight
Crypto markets were roiled Friday by a surprise tariff post from President Trump at 20:50 UTC, kicking off the largest notional crypto deleveraging on record: >$19B liquidated in ~24h, with bitcoin plunging to the low $106k–$107k area before rebounding. U.S. equities slumped in tandem (Nasdaq -3.6%, S&P 500 -2.7%, their worst one-day performances since April). On Binance, three “pegged” or wrapped assets – USDe, BNSOL, and WBETH – depegged hard. USDe, which is supposed to trade 1:1 for U.S. dollars, traded as low as ~$0.65 on Binance (while mint/redeem stayed functional at Ethena and it traded at par on most other venues). wBETH (Wrapped Beacon ETH) printed down to ~$430 at the trough and BNSOL (Binance Staked SOL) bottomed near $34.90, roughly 80%-90% discounts to their respective underlying assets (ETH and SOL). The sharp downturn triggered widespread liquidations and exchange risk-mitigants engaged. Auto-deleveraging (ADL) kicked in on multiple venues, forcibly reducing user positions to cap further losses during the free-fall.
What Happened — and When
04:40 UTC, Oct. 9: Hyperliquid "insider" funds a trading account with $80m USDC.
04:40 Oct. 9 – 20:49 UTC Oct 10: Hyperliquid “insider” gradually opens a ~$400m short position in BTC, stopping one minute before President Trump’s announcement.
20:50 – 21:20 UTC, Oct. 10: A Truth Social post from President Trump threatens 100% tariffs on China. Within minutes, crypto futures skid, options implied vols spike, and liquidity thins as market makers price in the regulatory uncertainty. Bitcoin is down ~10% intra-day, ETH down ~13%.
21:20 – 21:42 UTC, Oct. 10: USDe begins to fall below $1 on Binance as BTC and ETH find their intra-day troughs.
21:42 –21:51 UTC Oct 10: USDe hits its trough price of ~$0.65 and the Binance de-peg and liquidation cascade intensifies. Liquidations and fire sales of Binance pegged assets go into full swing. WBETH drops 80% from its peg in less than two minutes. BNSOL follows suit, dropping 80% in the next seven minutes.
21:51 –23:59 UTC Oct 10: Market finds its bottom as liquidations ebb. USDe repegs first with the fundamental redemption mechanisms in full swing. WBETH and BNSOL slowly regain their peg over the course of the night as market makers and traders evaluate the severity of the drawdown and re-assess their counterparty and venue risk.
Oct. 11 Onward: Market normalizes.
The crash was reminiscent of the 2010 “flash crash,” when the S&P 500 lost nearly 10% in ~30 minutes before recovering most losses by the close. That crash was a microstructure shock, with algorithms interacting and spiraling in response to a glut of exotic order types. Fundamentals took time to respond to the market crash-out, bringing the market back to normalcy before the end of the day.
‘Was It an Inside Job?’ The Hyperliquid Whale
A single Hyperliquid account added a very large BTC short position immediately before the tariff post and profited massively. The trader finished entering their short position at 20:49 UTC, exactly one minute before Trump’s 20:50 UTC announcement. The timing and size drew immediate attention and speculation about whether they possessed insider knowledge about Trump’s announcement.
We have no way to prove this and generally discount these narratives. It’s more comforting to believe a coordinated actor had a well-coordinated plan rather than accept that the event was just a collective freak-out by an over-levered market. But the timing is undeniably tight. Onchain sleuth Eyeonchains tracked the funding for the address to a fund manager, Garrett Jin, who said the capital was his clients’ funds (and, in a since-deleted post, he claimed no Trump affiliation). Fellow blockchain watcher ZachXBT added that the wallets likely span several entities, not one individual.
While an interesting subplot to the downturn, $400m of perp short notional is not enough on its own to tip the entire market. The short preceded the broad downturn; the downturn preceded the Binance depegs; and those depegs then deepened the unwind as collateral values collapsed.
Binance’s Role and Response
The dislocations in USDe, BNSOL, and wBETH occurred after the primary BTC/ETH crash window. Binance attributed the depegs to thin order books and a stressed infrastructure amid a rapid liquidation wave. All this happened while Binance was in the midst of changing the way it calculates margin for these assets, from price-based to redemption/fundamental references. But that process was not completed in time to mitigate mark sensitivity. In the aftermath, Binance said it would compensate affected users whose positions were liquidated due to wrapped-asset price collapses relative to their underlying assets. About $300 million has been distributed, without clawbacks from those who profited, and a $100 million low-cost loan program was launched for market makers. Binance explicitly disclaimed liability for traders’ losses, framing these measures as confidence-restoring rather than any admission of fault.
Why It Happened
Simply put: high leverage combined with thin order book depth and one macro headline sparked the crash. Crypto entered the event with elevated open interest and a rich risk appetite. A macro surprise hit; options spreads widened and hedging demand jumped; market makers reduced exposure and ADL kicked in on several perp venues, a pro-cyclical recipe when books are thin.
This was not an options-expiry story, it was a liquidity and leverage story. Traders sold whatever collateral they had, including “pegged” assets that should track fundamentals, until forced sellers met no bid. USDe printed ~$0.65 on Binance at the worst point even as Ethena, the protocol behind the token, kept the mint/redeem function live and the system over-collateralized. Mechanically, the price shock forced over-levered accounts on Binance to close USDe into illiquidity; leverage built around USDe across the ecosystem amplified the cascade as order-book depth evaporated. With leverage-enabling “perp dexes” becoming the dominant narrative in crypto markets over the last several months, it was only a matter of time before the stars aligned for a wipeout.
DeFi’s Mixed Scorecard
During the turmoil, USDe (Ethena) lost its peg on Binance’s centralized order book, trading down to roughly $0.65, even as mint/redeem functionality continued—an instructive case where protocol value ≠ exchange mark in a panic. The episode also revived prior debates around oracles and pricing, including Aave’s choice to hard-peg USDe to USDT to avoid flash-depeg feedback loops from exchange marks. Hard-coding those assumptions worked here but can mask real risks; in practice, you’re choosing which tail risk to accept.
Price shouldn’t be forced to equal “fundamental value” during fire sales. If nobody’s bidding, the clearing price is lower, and liquidations based on those prints are part of the game traders signed up for. Baking “fundamental pegs” into oracles solves this proximate incident but merely replaces price risk with fundamental risk. Don’t get too comfortable with a “risk-management fix” that just transfers risk. There is no zero-risk wrapped asset; a fundamental oracle simply removes the ability to risk-adjust the wrapper vs. the underlying. Is there zero risk to Binance custody, or multi-chain deployments? Obviously not. A fundamental oracle protects you from short-term turmoil like last week's but can just as easily go the other way if there is an issue with the wrapping entity. Fundamental oracles aren’t superior to price oracles; they optimize for different outcomes.
Was This 'the Biggest Ever'? Some Context
$19b of liquidations in a day is extraordinary but still just ~0.45% of today’s ~$4.2T crypto market cap — a huge deleveraging, but not a structural collapse. The following session’s rebound underscores that the drawdown was microstructure-driven more than a reflection of fundamentals. In notional terms, it is the single largest crypto liquidation in history, dwarfing the next largest liquidation of ~$10bn on 4/17/21.
In relative terms, Friday's liquidation looks a lot less severe: it equaled 45 basis points of the total crypto market cap of $4.2t. That’s just five basis points higher than the liquidation of April 2021, when the total market cap was $2.3t.
While Binance had market-specific issues that exacerbated the liquidations there, the pain was mostly felt on the major perp exchanges, Hyperliquid and Bybit (Coinglass does not currently track data on Aster), with 75% of the liquidations occurring on those platforms.
What to Watch Next
Bottom line, crypto is price-based, not covenant-based. It liquidates on prints, not courtesy calls. If you run size on perps or levered stablecoin loops, you’re taking on microstructure risk. In a crisis, order books get sparse and ADL trims winners.
Traders need to be clearheaded when participating in the markets. What are you actually buying? What is your actual exposure? This event wasn’t unprecedented, nor was it unpredictable. The outsized returns from leveraged trading and yield farming come with the risk of liquidation.
Don’t expect market makers to guarantee stable prices and liquidity regardless of the environment. When the going gets tough, they are self-preserving. Nobody “owes” anyone a “fair” bid.
The response from exchanges isn’t very heartening, either. The crypto industry is baking assumptions into its markets and protocols that address a proximate crisis but create more potential for harm down the line. Hard coding “fundamental” values into oracles or indices may spare the market a repeat of this type of depeg, but it socializes a different tail risk (custody/bridge/issuer failure). Pick your poison, know your exposure and don’t be shocked when a leverage machine behaves like one.
For broader market structure, this kind of shake-out is healthy. It clears excess leverage. The quick normalization, with IBIT volatility barely flinching and options vols mean-reverting within a day as market makers reopened, speaks to the resilience of the broader crypto market (outside the onchain memecoin casino).
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