I. Introduction

In the early hours of October 11, the cryptocurrency market experienced a "night of terror." In just an hour and a half, mainstream coins like Bitcoin plummeted by double digits, altcoins crashed, and the liquidation amount reached as high as $19.3 billion within 24 hours, setting a record for the largest single-day liquidation in crypto history.

Amid the seemingly prosperous bull market cycle, countless high-leverage positions, circular lending, and derivatives created a bubble that laid the groundwork for disaster. A single macro black swan event was enough to trigger systemic risk. When prices collapsed, leverage positions were liquidated in a chain reaction, and liquidity evaporated instantly, we witnessed not only a panic-induced chain reaction but also a "life-and-death test" of the liquidation system under extreme pressure.

What caused the "10·11 flash crash"? What risks and hidden dangers were exposed behind it? What impact and insights did it bring to the market? This article will deeply analyze the background and reasons for this crash, the transmission mechanisms, the USDe decoupling incident, impact assessments, and provide predictions and outlooks for the subsequent market trends in the fourth quarter of 2025.

II. Background and Reasons for the Crash

1. Trigger of the Crash: Macro Black Swan Strikes the Market

The direct trigger for this crash came from a macro-level black swan event—U.S. President Trump unexpectedly announced a 100% new tariff on Chinese goods. On the evening of October 10, Trump threatened to implement a new round of tariff policies on social media, escalating the trade tensions between China and the U.S. This news sharply increased global investors' risk aversion, with capital flooding into safe assets like the U.S. dollar and U.S. Treasury bonds. The announcement came after the traditional stock market had closed on Friday, and cryptocurrencies, as high-risk assets, were the first to be sold off.

Emotional factors also cannot be ignored. Concerns about a global economic slowdown and escalating trade wars further deteriorated already fragile investor confidence. Panic often reinforces itself, creating a cycle of selling-drops-selling. Moreover, the news broke on Friday night (Saturday morning in Asia), which was extremely unfavorable: most institutional traders in both Europe and the U.S. had already left their desks or reduced their positions for the weekend. The combination of a lack of liquidity and sudden bad news set the stage for the subsequent flash crash.

2. Leverage Bubble: The Domino Effect Beneath False Prosperity

Trump's tariff threat was merely a superficial trigger; the deeper reason for the market collapse lay in the high-leverage bubble and hidden risk accumulation that had built up over the past few months.

In the second half of 2025, Bitcoin, Ethereum, and other mainstream coins repeatedly hit new highs, creating an illusion of prosperity. However, analysis shows that a significant portion of the incremental capital was not from long-term spot purchases but rather from speculative capital accumulated through contract leverage, circular lending, and liquidity mining. In the bullish atmosphere, traders generally increased their leverage bets on rising prices, leading to a rapid increase in the risk of positions held by many crypto hedge funds and institutional investors. As prices continued to rise, the actual leverage ratio in the market increased, masked by the illusion of prosperity.

When negative news hit, this leveraged prosperity backfired on the market: the first wave of declines triggered by the news directly impacted high-leverage long positions, with many leveraged long positions hitting liquidation lines and being forcibly sold off. These forced liquidations further suppressed prices, leading to more long positions being liquidated, creating an ever-growing selling pressure, and hidden high-leverage longs fell like dominoes, ultimately evolving into an avalanche-like chain reaction.

3. Structural Defects in the Market: Weak Liquidity and Market Maker Exit

This flash crash exposed structural defects in the liquidity supply of the crypto market: market makers were unable to cover extreme scenarios, and there was a severe lack of liquidity for tail assets. When shocks occurred, these weaknesses caused the prices of certain assets to nearly free-fall.

Currently, the main liquidity providers in the crypto market are some active market makers (MM). They tend to allocate most of their funds to market making for mainstream assets (like BTC and ETH), while providing limited liquidity support for mid- to long-tail altcoins. Under normal market conditions, funds can cover daily trading fluctuations, but they are unable to provide support during extreme conditions. Moreover, a large number of new projects have emerged this year, leading to a surge in the number of small coins, but the funds and energy of market makers have not increased proportionately, resulting in the market's liquidity support for small coins being already overloaded. In other words, the market depth for tail assets is very weak.

Source: https://x.com/yq_acc/status/1977838432169938955

During the October 11 crash, when macro negative news triggered panic, market makers prioritized ensuring liquidity for mainstream coins, urgently reallocating funds originally designated for small coins to stabilize large-cap assets like BTC and ETH. As a result, the small coin market instantly lost its main counterparties, and the selling pressure came crashing down with no buyers to support it, leading to a near-free-fall price drop. Multiple coins plummeted by 80-95% in an instant, with the Internet of Things token IOTX nearly crashing to zero, and TUT and DEXE even showing a 99% drop, losing all buy orders at one point. This serves as a warning to traders: the normal spreads and trading depths that are often overlooked can evaporate in a storm, and the tail risks that are usually ignored can tear the market apart during a crisis.

III. Analysis of the Market Flash Crash Transmission Mechanism

As the market began to rapidly decline in the early hours of October 11, the microstructural issues within the crypto market further amplified the downward trend. The chain liquidations triggered by the initial drop, combined with the exhaustion of liquidity supply, constituted the main transmission mechanism of the flash crash.

Source: https://www.coingecko.com/en/coins/bitcoin

First Stage (around 5:00): Affected by the tariff news, Bitcoin began to decline from around $119,000. Although trading volume increased during this stage, it remained within normal ranges, and the market was still operating in an orderly manner, with market makers maintaining normal bid-ask spreads. Mainstream coins experienced a slow decline, and some highly leveraged longs began to liquidate, but the impact was relatively limited.

Second Stage (around 5:20): About 20 minutes later, the market suddenly experienced a waterfall of liquidations. The decline in the altcoin sector accelerated sharply, with a large number of mid- to small-cap coins plummeting within minutes, triggering a new wave of liquidations. Observations indicated that the total market trading volume surged to ten times its usual level. More dangerously, major market makers appeared to begin rapidly withdrawing orders for self-protection, causing many trading pairs to lose buy support instantly. During this stage, market liquidity significantly contracted, and selling pressure began to go unabsorbed.

Third Stage (around 5:43): Approximately 23 minutes after the first wave of liquidations, a more dramatic decoupling crash occurred on Binance. Three specific assets on Binance—USDe, WBETH, and BNSOL—experienced price crashes almost simultaneously:

• The price of the USDe stablecoin plummeted from $1 to about $0.6567, a drop of 34%. Meanwhile, on other trading platforms, USDe remained above $0.90 and did not experience such an extreme decoupling.

• The price of WBETH (Binance's staked Ethereum) experienced a cliff-like drop, plummeting by 88.7%, from a price equivalent to about $3,800 to just around $430.

• BNSOL (Binance's SOL token) also faced a crash, dropping 82.5% from a normal price of about $200 to a low of $34.9.

This scene marked a complete collapse of market structure, with buyer liquidity on Binance nearing exhaustion, the price discovery mechanism failing, and even stablecoins and pegged assets being trampled.

Final Stage (around 6:30): As major assets decoupled and market makers fully exited, the market fell into a state of disorder around 6:30. Prices fluctuated significantly in panic, and the total amount of forced liquidations across the network surged sharply. By 9 a.m., the total liquidation amount over 24 hours had exceeded $19.2 billion, with approximately 1.64 million positions being forcibly liquidated. Among them, the largest single liquidation loss exceeded $200 million. The entire crash process, from the triggering of the news to the market losing control, took only about an hour and a half.

IV. The USDe Decoupling Incident

An intriguing subplot in this flash crash was the "decoupling" incident of the new synthetic dollar stablecoin USDe. However, this significant deviation of USDe was not a typical systemic failure of a stablecoin but rather a price misalignment caused by localized liquidity exhaustion on the exchange.

USDe is a synthetic dollar asset launched by Ethena, which maintains a 1:1 peg to the dollar through a cash and perpetual contract delta-neutral strategy for hedging and arbitrage (i.e., "spot long + perpetual short" strategy). It is essentially an over-collateralized stablecoin: users must provide sufficient collateral to mint USDe, and the protocol hedges price fluctuations by holding spot and shorting futures. Under normal circumstances, USDe can be stably exchanged in on-chain liquidity pools (such as Curve, Uniswap) and supports minting and redemption mechanisms to ensure price anchoring. Before the crash, the circulating supply of USDe was approximately $9 billion, and it maintained an over-collateralized status.

During the market's violent turmoil, the USDe/USDT trading pair on Binance experienced an abnormal crash, with the price of USDe briefly dropping to about $0.6567. However, almost simultaneously, USDe remained stable on other major trading venues (including decentralized trading pools like Curve and another major exchange, Bybit): the price difference of USDe against other stablecoins in the Curve pool was less than 1%, and on Bybit, USDe only dipped to around $0.92. Clearly, this was not a loss of peg for the USDe protocol itself, but rather a localized phenomenon on the Binance platform.

Source: https://x.com/gdog97_/

The reasons for the price crash of USDe on Binance can be summarized in two main points:

• Lack of liquidity and infrastructure flaws: Binance is not the primary trading market for USDe, and its liquidity for USDe is only in the tens of millions of dollars, much shallower compared to venues like Curve with liquidity pools exceeding $100 million. Normally, professional market makers can arbitrage between platforms through the minting/redemption mechanism of USDe to ensure price consistency. However, Binance did not establish a direct redemption channel with the Ethena team at that time, and the recharge and withdrawal processes on Binance also faced temporary obstacles during extreme market conditions. As a result, when Binance's infrastructure was overwhelmed during the crash, the market price deviated without timely correction through external liquidity, and the buy orders for USDe on Binance were quickly exhausted, causing the sell orders to push the price below the pegged value.

• Risk control and oracle design issues: Binance uses a unified margin account system, where different assets share a common margin pool. When the price of USDe plummeted, a large number of accounts using USDe as collateral were instantly liquidated, further exacerbating the selling pressure on USDe and creating a vicious cycle. Additionally, Binance's risk control for USDe's price relied on the shallow order book prices of its own exchange as oracle prices, rather than referencing external deep market prices like those from Curve. This led to a sharp drop in the marked price of USDe on Binance, triggering automatic deleveraging and a chain of liquidations, further amplifying the price decline.

• High leverage risk from USDe circular lending: Furthermore, Binance offered high-yield financial products for USDe (12% annualized) to encourage users to engage in circular arbitrage, which led to many users conducting circular borrowing operations with USDe, hiding leverage exposures of up to 10 times. Many traders also used USDe as general collateral, resulting in a high concentration of collateral.

In summary, the drastic movements of USDe on Binance were merely an illusion of "decoupling." In fact, throughout the incident, the over-collateralized status of the USDe protocol remained sound, and the redemption mechanism operated normally. When the price of USDe crashed on Binance, market participants quickly reduced the supply of USDe from about $9 billion to $6 billion through redemptions, with no deadlock or run occurring during the entire process.

This incident also serves as a wake-up call for both exchanges and stablecoin issuers: the balance between transparency and security is crucial. On one hand, Ethena provided transparent data and public mechanisms for USDe, ensuring market confidence; on the other hand, exchanges need to improve their risk control models, especially for assets that are not their primary trading markets, by adopting more robust oracle sources or limiting unreasonable liquidations during extreme market conditions. In the aftermath, Binance quickly patched vulnerabilities: the pricing mechanism updates for WBETH and BNSOL, originally scheduled to take effect on October 14, were completed ahead of schedule on October 11, and Binance compensated nearly $400 million in losses to affected users regarding the USDe incident. These measures somewhat alleviated market skepticism but also highlighted the vulnerabilities of centralized platforms during extreme market conditions. In contrast, decentralized platforms like Curve provided deeper liquidity, and protocols like Aave maintained smooth automatic liquidation mechanisms, demonstrating the resilience of DeFi in responding to extreme volatility.

V. Impact Assessment: Aftershocks, Damages, and Opportunities for Change

Such a drastic market movement, although some effects may take weeks to fully digest, has already shown some widespread impacts on the industry:

1. Confidence in Altcoins Shaken: This incident created "big winners" and "big losers." For those investors, funds, and even market makers who suffered significant losses, their confidence is bound to be shaken in the short term. Some crypto hedge funds may face liquidation or severe losses. Arthur, the founder of DeFiance Capital, revealed that although their fund incurred losses, it "did not rank among the top five most volatile days in history," indicating it was manageable. He also stated that this crash significantly set back the entire crypto field, particularly impacting the altcoin market, as the price discovery of most altcoins relies on offshore centralized exchanges. This may prompt some professional funds to reduce their exposure to altcoins and shift towards more reliable investment targets. In the short term, the altcoin sector may continue to remain sluggish, and the pessimistic sentiment of "the altcoin season may not come" is beginning to spread.

2. Responses and Improvements from Trading Platforms: This incident has caused some damage to the reputation of exchanges, especially Binance, and has forced the platform to reflect and improve.

• Compensating User Losses: In addition to compensating user losses, Binance quickly completed the switch to the WBETH/BNSOL pricing system to avoid similar anchoring price gap vulnerabilities.

• Expanding Insurance Funds: Exchanges like Binance may accelerate plans to expand the scale of their insurance funds to better cope with extreme market fluctuations. Hyperliquid has also announced that it will inject a portion of its daily revenue into a larger insurance pool to enhance the platform's risk resilience.

• Adjusting Mechanism Flaws: At the same time, Binance may reassess its unified margin model and oracle mechanisms to prevent similar forced liquidation chains caused by USDe mispricing.

• Introducing Circuit Breaker Mechanisms: When prices drop beyond a certain percentage within a short time, temporarily halting trading to allow liquidity to recover. This is already standard in traditional finance, and the crypto industry may need to learn from it. Of course, balancing circuit breakers with the characteristic of 24/7 continuous trading is a challenge.

1. Advantages of Decentralized Finance Highlighted: During this incident, the DeFi sector withstood the test, highlighting its advantages. Leading protocols like Aave performed robustly during large-scale liquidations, successfully completing $180 million in liquidations without human intervention, proving the reliability of smart contracts. Decentralized exchanges like Uniswap saw trading volumes surge while continuously providing liquidity, without experiencing stalling or major failures. Stablecoin pools like Curve successfully mitigated the impact of USDe, maintaining stable prices. This has led more people to reflect: should the core infrastructure of the crypto market be more decentralized?

2. Regulatory and Compliance Impacts: Such a drastic flash crash inevitably attracts the attention of regulatory agencies. On one hand, regulators may accelerate the formulation of requirements regarding leverage limits and risk reserves to prevent retail investors from excessively using leverage and to guard against systemic risks. On the other hand, if there is evidence of deliberate market manipulation, legal departments in various countries may intervene to investigate and hold accountable the involved institutions or individuals. The U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have repeatedly warned about the risks of manipulation in the crypto market in recent years, and this incident may serve as evidence for them to push for stricter regulations. For exchanges, strengthening compliance and transparency will become more urgent; otherwise, investor confidence and compliance qualifications may be affected.

3. Changes in Investor Psychology and Strategies: "312," "519," and now "10·11," each brutal crash is a milestone event in the crypto market, profoundly affecting investor psychology. After this event, many retail and institutional investors will reassess their risk management strategies. In the near term, the leverage usage in the market may decline, and capital preferences will shift from high-risk small coins to relatively stable blue-chip coins and core assets like Ethereum. Additionally, some users heavily invested in a single exchange may begin to diversify their trading venue risks. These behavioral changes will gradually shape a more mature and rational market ecology.

In summary, the direct damage from the October 11 crash is significant, but in the long run, it may also bring opportunities for industry improvement. On the surface, this was an accident caused by a macro black swan, but what truly caused the market to collapse was the long-accumulated illusion of leverage and structural defects. If the crypto industry can reform its leverage, liquidity, and risk control frameworks, this disaster may transform into a turning point for healthy future development.

VI. Market Outlook: Risks and Opportunities Coexist in Q4

After this baptism, where will the crypto market head in the fourth quarter of 2025? Looking ahead, we must recognize both the risks and challenges, as well as seize potential opportunities:

1. Short-term Aftershocks and Bottom-Building Expectations: After a crash, aftershock risks usually accompany it. In the coming weeks, it is possible that some "after-effects" news will emerge, such as individual funds facing liquidation or project teams experiencing funding chain breaks. These secondary negative news may repeatedly impact market sentiment. However, as long as there are no larger storms, the market is expected to gradually digest the negative effects. After this large-scale deleveraging, the selling pressure in the market has been significantly released, and concentrated selling often indicates the approach of a phase bottom. If no new black swans emerge, mainstream coins may complete bottom-building amid fluctuations, and sentiment is expected to slowly recover.

2. Macro Environmental Variables: Macro factors remain key to influencing Q4 trends. Attention must be paid to the ongoing trade frictions between China and the U.S. and the direction of global risk appetite. If Trump's tariff threat is not a "one-off" but triggers substantial trade retaliation from both sides, then global risk assets will be under pressure, and the crypto market will find it hard to remain unaffected. Conversely, if tensions ease or the news is digested by the market, the crypto market may restore its operational logic. Additionally, the Federal Reserve's monetary policy and inflation data will also play a role in Q4. If inflation remains under control and the Fed hints at stopping interest rate hikes or even has easing expectations, risk assets may overall receive a boost.

3. Market Structure Improvement and Opportunities: After this reshuffle, the market leverage ratio has significantly decreased. A report from Bitwise noted that approximately $20 billion in leverage was wiped out during the crash, marking the largest scale of leverage clearing in crypto history. However, it is fortunate that no core institutions collapsed, and there was no systemic crash, which prevented a prolonged downturn. Long-term driving factors such as institutional entry, the widespread use of stablecoin payments, and the on-chain integration of traditional assets are still progressing. In the short term, the market is healthier after deleveraging, and subsequent rises will have a more solid spot foundation to support them. If new incremental capital enters the market, it will not need to exert as much effort to combat stubborn long leverage resistance as before, which may make future rebounds lighter.

4. Potential Catalysts for Rebound: Looking ahead to Q4, potential positive catalysts are also worth noting. For example, the approval progress of diversified crypto asset ETFs is expected to see regulatory decisions around the end of the year, and if approved, it will be a significant boon. Additionally, Ethereum's network upgrades, Layer 2 developments, and breakthroughs in new applications like AI and RWA within the Ethereum ecosystem this year may reignite market enthusiasm. If no major negative news emerges and the aforementioned positives occur, mainstream coins may regain upward momentum by the end of Q4 or early 2026.

5. Further Differentiation in the Cryptocurrency Landscape: The rebound potential after the crash may vary significantly across different sectors. Bitcoin and Ethereum, as market cornerstones, may see their market share further increase after this incident. Investors may prefer to allocate funds to these assets with stronger "shock resistance," expecting them to recover and reach new highs first. In contrast, the altcoin sector may continue to remain sluggish in the short term. It will be challenging for altcoins to replicate the collective surge of an "altcoin season," with only a few high-quality projects with substantial positive news likely to continue strengthening.

In conclusion, the crash on October 11, 2025, will be recorded as another "anniversary" in the development history of cryptocurrencies. This night of terror, triggered by a macro black swan and exacerbated by the collapse of leverage bubbles, provided all participants with a thrilling lesson in risk education. Whether or not there were orchestrators behind the scenes, we have seen two faces of the crypto market: one is the fragility of high leverage and low liquidity, making it vulnerable under extreme conditions; the other is the resilient operation of decentralized finance, the market's self-repairing ability, and investors' faith in long-term value, supporting this emerging market through its darkest moments. Looking ahead, the crypto market will gradually mature through regulatory adjustments and its own reforms and innovations. As investors, we must remain vigilant in times of peace, always remembering the iron rule that "survival is the key to the future," while also maintaining confidence in the industry's innovation and growth. Wishing everyone successful investments and safe progress in the ever-changing market.

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