A series of factors culminated in a significant event on Friday, resulting in the largest liquidation event in cryptocurrency history and momentarily pushing Bitcoin (BTC) below $110,000.
The $19 billion in liquidations indicates that leveraged positions were forcibly closed rather than investors losing that exact amount.
The unrealized loss is more evident through a decline in market capitalization, which saw a $450-billion wipeout. From Friday to Sunday, the total cryptocurrency market cap dropped from $4.24 trillion to $3.79 trillion. As of this writing, the market has rebounded above $4 trillion.
Analysts are still trying to understand how a combination of macroeconomic shocks, exchange mispricing, and over-leveraged positions led to this unprecedented liquidation event. Here’s what we know so far.
Tariff shocks ripple through global and crypto markets
On Friday, US President Donald Trump intensified the ongoing trade war, threatening a 100% tariff on Chinese imports starting Nov. 1, “or sooner, depending on any further actions or changes by China.”
In the crypto space, some analysts suspect that the market downturn on that day was instigated by a malfunction in an industry-specific price oracle, rather than Trump’s tariff announcement. However, comparisons with traditional financial indices indicate that the sell-off was not limited to crypto markets.
The Nasdaq-100, tracking 100 top non-financial companies, led the decline among major US indexes with a 3.49% drop by Friday’s close. The S&P 500 decreased by 2.71%, while the Dow Jones Industrial Average fell by 1.9%.
Bitcoin’s decline was steeper, falling 3.93% during regular trading hours and continuing to drop after US markets closed.
Binance’s oracle glitch blamed for crypto collapse
While Trump’s tariff announcement triggered the broader market sell-off and Bitcoin’s weekend decline, industry-specific factors magnified the fallout once traditional markets were closed.
A critical issue was with USDe, Ethena’s synthetic dollar, which maintains its peg to the dollar via a delta-neutral strategy in the perpetual futures market. On Friday, USDe seemed to lose parity, plummeting to $0.65, a drop primarily visible on Binance. Other exchanges saw USDe trading with typical mild volatility for dollar-pegged tokens in turbulent market conditions.
According to an analysis by X user YQ, the crash arose from a USDe sell-off that revealed issues in Binance’s unified-margin oracle. This system priced collateral assets like USDe, wBETH, and BNSOL using Binance’s own spot order books, leading to sharp real-time markdowns. This triggered liquidations that drained liquidity across linked platforms. Other platforms that relied on Binance’s pricing followed suit, even though USDe and related assets were trading normally elsewhere. YQ characterized the incident as an oracle failure rather than a traditional market crash.
In a separate analysis, Haseeb Qureshi, managing partner at crypto investment fund Dragonfly, stated that USDe never truly depegged, observing that its deepest liquidity was on Curve, where prices deviated by less than 0.3%. On Binance, API failures and the lack of a direct mint-and-redeem channel with Ethena stymied market makers’ attempts to restore the peg.
It’s premature to blame Binance for the crypto crash
Delphi Digital analyst Trevor King claimed that Binance made a fundamental error by valuing wrapped assets like wBETH, BNSOL, and USDe based on its own spot prices rather than their underlying redemption values, giving collateral a deceptively weak appearance and instigating mass liquidations.
Related: ‘Uptober’ marks 21 crypto ETF filings as Bitcoin rises
As Binance’s oracle became the implicit “price of record” across the leveraged trading landscape, those mispriced feeds propagated to other exchanges and decentralized exchanges (DEXs). Nevertheless, the analyst noted he remains cautious about solely attributing the root cause to Binance, as the timing of the initial cascade merits further consideration.
This is also part of Binance’s defense. The exchange stated that “core futures and spot matching engines and API trading remained operational” during the incident and asserted that volatility was “mainly driven by overall market conditions.”
However, the exchange acknowledged that not all modules functioned correctly:
At the same time, the review confirmed that following 2025-10-10 21:18 (UTC), some platform modules briefly experienced technical issues, and certain assets had de-pegging problems due to sharp market fluctuations.
Binance also revealed that $283 million was distributed in two batches to compensate affected clients. Binance’s token, BNB (BNB), soared to a new all-time high on Monday.
Binance updated its margin price feeds for wBETH and BNSOL on Saturday, revising their valuations from Binance’s spot prices to the official staking conversion ratios. This change was initially set for Tuesday, Oct. 14, but was implemented earlier in light of the market turmoil.
Hyperliquid defends its position in the $19-billion crypto liquidation
Hyperliquid has emerged as a leading player in crypto, particularly as the top DEX for perpetual volume, according to DefiLlama, a data provider that recently ceased using Aster’s data over integrity concerns. Aster, a competitor to Hyperliquid, is backed by Binance’s investment arm, YZi Labs.
Related: Aster delisting exposes DeFi’s growing integrity crisis
Hyperliquid was identified as the primary venue where most liquidations occurred during the $19-billion cascade, leading Kris Marszalek, CEO of Crypto.com, to call for an investigation into leading derivatives platforms.
Hyperliquid founder Jeff Yan defended his platform, asserting that it operated as designed, maintaining 100% uptime and zero bad debt during the upheaval.
He stated that the liquidations were not the result of a system failure but were due to excessive leverage amidst a rapid market downturn that saw many altcoins plummet over 50% in moments. Hyperliquid’s liquidation strategy first attempts to close under-collateralized positions through its order book and then utilizes Hyperliquid Liquidity Provider vaults as backup liquidators. Should both methods fail, the exchange triggers auto-deleveraging, closing profitable positions on the winning side to maintain solvency.
Yan further argued against critics, accusing rival exchanges of deflecting blame.
“Solvency and uptime are the two most critical attributes of a financial system,” he asserted, calling attempts to mislead users about Hyperliquid’s performance unethical. He contrasted Hyperliquid’s on-chain transparency with the opaque liquidation practices of centralized exchanges, arguing that this incident showcased the strength of its margin system rather than a flaw.
Hyperliquid whale’s short bet just before crypto crash disaster
More than 250 wallets have lost millionaire status on Hyperliquid since Friday’s collapse, according to HyperTracker. A few wallets have since been referred to as “Hyperliquid whales,” but one, in particular, has caught attention due to its incredible timing and remarkable profits.
A whale trader on the derivatives DEX garnered notice after initiating a short position merely minutes ahead of Trump’s tariff announcement on Friday, realizing a profit of $192 million.
On Sunday, the same wallet opened another significant bet: a $163-million short against Bitcoin using 10x leverage, which is already showing roughly $3.5 million in profit. This position will be liquidated if Bitcoin reaches $125,500.
The timing of these trades has led many in the crypto community to label the trader an “insider whale,” with speculation that their positions may have even contributed to the $19-billion liquidation cascade over the weekend.
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