Friday witnessed a stunning $19 billion crypto market liquidation event that has sparked division among traders. Some have accused market makers of orchestrating a sell-off, while analysts have attributed it to a natural deleveraging cycle.
The flash crash on Friday caused open interest for perpetual futures on decentralized exchanges (DEXs) to plummet from $26 billion to below $14 billion, as reported by DefiLlama.
Crypto lending protocol fees surged past $20 million on Friday, marking the highest daily total on record, while weekly DEX volumes rose to over $177 billion. Additionally, the total borrowed across lending platforms fell below $60 billion for the first time since August.
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Some analysts see organic market reset
While numerous traders suggested a coordinated correction fueled by platform glitches and significant market participants, blockchain data indicated that the majority of the record liquidation was organic.
During the crash, open interest dropped by $14 billion, with at least 93% of this decline classified as “controlled deleveraging, not a cascade,” as stated by Axel Adler Jr, an analyst at the blockchain data platform CryptoQuant.
Out of the $14 billion, only $1 billion worth of long Bitcoin (BTC) positions were liquidated, which Adler deemed a “very mature moment for Bitcoin” in a Tuesday post on X.
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However, not everyone is convinced the event was merely mechanical. Several market observers have accused major market makers of playing a role in the downturn by withdrawing liquidity from exchanges at crucial moments.
According to blockchain analyst YQ, market makers allegedly created a “liquidity vacuum” that worsened the correction.
Market makers began pulling liquidity at 9:00 PM UTC on Friday, roughly one hour after U.S. President Donald Trump’s tariff threat.
By 9:20 PM UTC, most tokens hit rock bottom, with market depth for tracked tokens collapsing to just $27,000, a 98% decline, as reported by YQ in a Monday X post.
The blockchain data platform Coinwatch also noted the 98% market depth collapse on Binance, the world’s largest cryptocurrency exchange.
“When the token price crashed, both MMs withdrew everything from the books. An hour and a half later, Blue reactivated their bots and returned to providing similar amounts of liquidity as before. Meanwhile, Turquoise is barely present in the books,” Coinwatch stated in a Sunday X post.
In relation to another unidentified Binance-listed token valued at over $5 billion, two out of three market makers “abandoned their obligations for five hours.”
Coinwatch has also stated it is in discussions with the two market makers to “hasten their return to the order books.”
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