A confluence of factors created a perfect storm on Friday, resulting in the largest liquidation event in cryptocurrency history and causing Bitcoin (BTC) to momentarily dip below $110,000.
The $19 billion in liquidations indicates that leveraged positions were forcibly closed, not that investors lost that total amount.
The unrealized losses are more accurately reflected in the market capitalization drop, which wiped out $450 billion. From Friday to Sunday, the total cryptocurrency market capitalization fell from $4.24 trillion to $3.79 trillion. As of now, the market has already recovered to above $4 trillion.
Experts are still analyzing how a blend of macroeconomic shocks, pricing errors on exchanges, and excessive leverage came together to create such a severe liquidation event. Here’s what we know so far.
Tariff shock reverberates in global and crypto markets
On Friday, US President Donald Trump intensified the ongoing trade war that has characterized much of his presidency, threatening a 100% tariff on Chinese goods starting Nov. 1, “or sooner, depending on any further actions or changes taken by China.”
Some crypto analysts believe the downturn on that day was primarily due to a specific pricing malfunction in the industry, rather than Trump’s tariff threats. However, the decline in traditional financial indexes suggests that the sell-off extended beyond the cryptocurrency sector.
The Nasdaq-100, which tracks 100 leading non-financial companies, saw a 3.49% drop by the end of Friday trading. The S&P 500 decreased by 2.71%, while the Dow Jones Industrial Average, made up of 30 blue-chip stocks, fell by 1.9%.
Bitcoin led the decline among these indexes, dropping 3.93% during regular trading hours and continuing to fall after the US markets closed.
Binance’s oracle error cited in crypto downfall
While Trump’s tariff announcement spurred the broader market plunge and Bitcoin’s weekend drop, industry-specific issues exacerbated the situation once traditional markets closed.
A significant factor was USDe, Ethena’s synthetic dollar, which is designed to remain pegged to the USD. On Friday, USDe appeared to lose its peg, plummeting to $0.65, particularly on Binance. Other exchanges showed typical volatility for dollar-pegged tokens during market turmoil.
An analysis by X user YQ identified that a sell-off of USDe exposed vulnerabilities in Binance’s unified-margin oracle. This system used Binance’s own spot order books to price assets, leading to significant mark-downs that triggered a chain reaction of liquidations across interconnected exchanges. Other platforms that relied on Binance’s prices also experienced issues, even though USDe was trading normally elsewhere. YQ characterized this situation as an oracle failure rather than a typical market crash.
Haseeb Qureshi, managing partner at Dragonfly, indicated in another analysis that USDe had not actually lost its peg, noting that its primary liquidity was on Curve, where prices diverged by less than 0.3%. On Binance, API malfunctions and a lack of direct mint-and-redeem functionality with Ethena prevented market makers from re-establishing the peg.
It’s premature to point fingers solely at Binance for the recent crypto crash
Delphi Digital analyst Trevor King asserted 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. This caused collateral to seem weaker than it was, resulting in mass liquidations.
Related: ‘Uptober’ marks 21 crypto ETF filings as Bitcoin rises
As Binance’s oracle became the go-to “price reference” in leveraged trading, mispriced feeds spread to other exchanges and decentralized exchanges (DEXs). Despite this, the analyst advised caution before attributing the root cause solely to Binance, as the timing of the initial event is crucial to the analysis.
This also forms part of Binance’s defense. The exchange stated that “core futures and spot matching engines and API trading remained operational” during this period, suggesting that volatility was “mainly driven by overall market conditions.”
Nonetheless, Binance acknowledged that some of its modules did not perform optimally:
At the same time, the review confirmed that following 2025-10-10 21:18 (UTC), some platform modules briefly experienced technical glitches, and certain assets had de-pegging issues due to sharp market fluctuations.
Binance also reported that $283 million had been allocated in two phases to compensate affected clients. Binance’s token, BNB (BNB), reached a new all-time high on Monday.
On Saturday, Binance revised its margin price feeds for wBETH and BNSOL, shifting their valuations from Binance’s own spot prices to official staking conversion ratios. Originally planned for Tuesday, Oct. 14, the adjustments were made sooner in response to the market upheaval.
Hyperliquid defends its position in the $19-billion crypto liquidation
Hyperliquid is emerging as a significant player in crypto and currently ranks as the top DEX for perpetual volume, according to DefiLlama, a data provider that recently removed Aster’s data due to integrity concerns. Aster, a competitor to Hyperliquid, is supported 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 transpired during the $19-billion collapse, prompting Kris Marszalek, CEO of Crypto.com, to call for an investigation into leading derivatives platforms.
Hyperliquid founder Jeff Yan defended the platform’s performance, asserting it operated as intended, maintaining 100% uptime and zero bad debt throughout the incident.
He clarified that the liquidations were not due to a system failure but rather excessive leverage amid a rapid market downturn that caused many altcoins to plummet over 50% in just minutes. Hyperliquid’s liquidation process first aims to close under-collateralized positions through its order book, moving to its liquidity provider vaults as backstop liquidators if necessary. If these options fail, the exchange resorts to auto-deleveraging, which closes profitable positions on the winning side to uphold solvency.
He also countered criticisms, accusing rival exchanges of deflecting responsibility.
“Solvency and uptime are the two most crucial attributes of a financial system,” he remarked, describing attempts to “gaslight users” regarding Hyperliquid’s performance as unethical. He contrasted Hyperliquid’s on-chain transparency with the non-transparent liquidation practices of centralized exchanges, arguing that the situation illustrated the resilience of its margin system rather than showcasing a defect.
Hyperliquid whale’s short position just before crypto crash
More than 250 wallets have lost their millionaire status on Hyperliquid since Friday’s crash, as reported by HyperTracker. Several wallets have been labeled “Hyperliquid whales,” but one in particular has attracted scrutiny for its eerie timing and large profits.
A whale trader on the derivatives DEX raised eyebrows after opening a short position just minutes before Trump’s tariff announcement on Friday, netting a profit of $192 million.
On Sunday, this same wallet opened another significant bet: a $163-million short against Bitcoin with 10x leverage, already accruing about $3.5 million in profit. The position will be liquidated if Bitcoin heightens to $125,500.
The timing of these trades has led many within the crypto community to brand the trader as an “insider whale,” with some speculating that their actions may have even played a role in the $19-billion liquidation wave over the weekend.
Magazine: EU’s privacy-killing Chat Control bill delayed — but the fight isn’t over
