There are times when the fervently optimistic crypto traders face the harsh reality of the markets. October 10, 2025, marked one of those sobering moments—a day when leverage faced severe repercussions, liquidity disappeared, and even experienced traders found themselves looking at red screens as billions were lost from the crypto market.
Examining the crypto market collapse
The catalyst for this chaos was a toxic blend of macroeconomic factors: trade disputes and tariff reports incited a risk-off reaction. Within just one hour, Bitcoin dropped approximately 13%, with altcoins suffering even steeper declines. Some coins, like ATOM, briefly fell to nearly zero on less liquid exchanges before experiencing partial recoveries.
Across the board, over $20 billion in leveraged positions were liquidated on both centralized and decentralized platforms, marking this event as, according to Bitwise portfolio manager Jonathan Man, the largest liquidation in crypto history.
This was not a gradual decline. After weeks of bullish sentiment and high open interest, the crypto market’s gains were erased almost overnight, reverting market positions to levels seen months earlier. In total, more than $65 billion in open interest vanished from the market.
Who truly faced the fallout?
It’s easy to say “retail investors were the casualties.” However, Scott Melker from Wolf of All Streets, representing the view of numerous analysts, correctly pointed out:
“The individuals who were liquidated weren’t casual investors. They were seasoned traders utilizing leverage on decentralized exchanges. As always… This was hard-hitting, but it wasn’t a retail wipeout. It was a leverage collapse affecting our most committed participants.”
Data supports this claim. New retail investments are increasingly directed toward spot or large-cap ETFs, which are largely shielded from internal DeFi leverage mechanisms. Those left holding losses were high-leverage perpetual traders. In essence? Long-time crypto enthusiasts, not novices.
What caused the severe damage?
The explanation, as detailed in Jonathan Man’s in-depth analysis, lies in market structure. Perpetual futures (“perps”) operate on a zero-sum basis: when the losers owe more than they can afford to pay, the entire system comes under strain.
Under normal circumstances, margin calls and liquidations are absorbed organically. However, as volatility surged, liquidity providers withdrew. Thin order books for altcoins resulted in exaggerated price movements, with auto-deleveraging (ADL) preventing even profitable traders from capitalizing in certain instances.
Specific platforms, such as Hyperliquid, managed to thrive through on-chain liquidity pools, profiting from forced sales as traders saw their positions wiped out at a fraction of their actual value. By day’s end, even sophisticated market-neutral strategies were taken by surprise as operational risks and sluggish collateral led to sudden losses throughout the crypto landscape.
CeFi vs. DeFi: contrasting ecosystems
Centralized exchanges felt the impact most severely, facing cascading liquidations, especially in long-tail tokens, whereas DeFi platforms fared better due to stringent collateral requirements and programmed pricing mechanisms.
For instance, protocols like Aave and Morpho mandated high-quality collateral and safeguarded stablecoin values, reducing the chances of a complete DeFi collapse. Nevertheless, there were still challenges: USDe dipped to $0.65 on certain centralized platforms, and users leveraging it were rapidly liquidated.
Widespread price spreads, sometimes exceeding $300 between exchanges, created rare arbitrage opportunities for agile professionals, but the overall takeaway remains more serious.
Over $20 billion disappeared from the crypto sphere, but spot buying continued steadily. Prices rebounded from extreme lows, and leverage’s excesses were forcibly cleansed from the ecosystem. As Man articulated, effective operational strategies and liquidity management—not merely market trends—determined the resilience of participants. As Bitwise CEO Hunter Horsley noted:
“One of the most significant liquidation events in Bitcoin’s history — And it’s down only 15%. A remarkable testament to BTC’s strength. Nothing halts this progress.”
Crypto’s fundamental volatility, coupled with its increasing sensitivity to macroeconomic factors, implies that such corrections are both unavoidable and beneficial, helping to restore equilibrium while reminding all participants that leverage is not only risky; it can be brutal.
