Author: Zhang Yaqi, Wall Street Watch
The world's largest cryptocurrency exchange Binance attributed the largest liquidation event in history, amounting to $19 billion on October 10 last year, to the resonance of macro risk shocks, high leverage, and liquidity exhaustion, denying that the core trading system failure was the main cause. However, this explanation failed to quell industry doubts about its marketing strategy and market influence.
Binance reported on Saturday that the global market was under pressure due to Trump’s tariff news, while over $100 billion in Bitcoin derivatives' open contracts, sharply shrinking order books, and blockchain congestion collectively triggered a chain liquidation. The exchange admitted to specific issues on two platforms but emphasized that about 75% of the liquidations occurred before its index deviation and has compensated users over $328 million.
Binance co-founder Zhao Changpeng denied on Friday during a live Q&A that the platform was a key driving factor behind the wave of liquidations, calling the related accusations "far-fetched." He stated that users who suffered losses due to platform system issues have been compensated, and Binance, as a company regulated in Abu Dhabi and still under U.S. government scrutiny, operates with transparency.
However, competitor OKX's CEO Xu Mingxing accused Binance of "irresponsible marketing activities" that triggered the crash after Zhao Changpeng's remarks, particularly regarding the promotion of high-yield products targeting the USDe stablecoin. He stated that as the largest global platform, Binance has "a massive influence and corresponding industry leadership responsibility." Bitcoin has continued to struggle since the crash in October, currently trading about 36% lower than its historical high.
Macro shocks triggered liquidity exhaustion.
Binance detailed the mechanisms of the market crash on October 10 in its report. News related to tariffs had already put pressure on the global market, while the sustained rise of Bitcoin and Ethereum over the previous months had highly leveraged traders with concentrated exposure. The open contracts for Bitcoin futures and options exceeded $100 billion, creating favorable conditions for forced deleveraging.
The sell-off quickly became self-reinforcing. As prices fell, market makers initiated automated risk controls and reduced exposure, withdrawing liquidity from the order book. Binance cited Kaiko data showing that during peak volatility, the buy depth of several major exchanges nearly disappeared. In the case of few orders, even small-scale liquidations can significantly depress prices.
This turmoil is not limited to the cryptocurrency market. The U.S. stock market evaporated about $1.5 trillion that day, with the S&P 500 and Nasdaq indices recording their largest single-day declines in six months. Binance stated that approximately $150 billion in systemic liquidations occurred in the global market that day.
Blockchain congestion has intensified the pressure. Ethereum gas fees (on-chain activity transaction fees) once surged to over 100 gwei, slowing down transfer speeds and limiting cross-exchange arbitrage. Due to the inability to move funds quickly, price discrepancies widened, and liquidity further fragmented.
Platform issues and compensation plans.
Binance acknowledged that two platform-specific incidents occurred during the crash but stated that neither incident led to broader market volatility.
The first event involved a slowdown in the internal asset transfer system between 21:18 and 21:51 UTC, affecting transfers between spot, wealth management, and futures accounts. The core trading system remained operational, but some users temporarily saw a zero balance display due to backend timeouts. Binance stated that the issue was caused by a regression in database performance under a surge of traffic, which has now been fixed, and affected users have been compensated.
The second incident involved a temporary deviation in the indices of USDe, WBETH, and BNSOL between 21:36 and 22:15 UTC, occurring after most liquidations had already been completed. Binance stated that thin liquidity and delayed cross-exchange rebalancing led to disproportionate effects of local price fluctuations on index calculations. The exchange has implemented methodological adjustments, and affected users have been compensated.
Binance emphasized that about 75% of the liquidations that day occurred before the index deviation, indicating that the initial macro shock was the main driving factor. The exchange claimed to have compensated users over $328 million in total and initiated additional support programs to stabilize affected participants. The total compensation provided by Binance to customers and enterprises after the crash was approximately $600 million.
Zhao Changpeng denies platform responsibility.
Zhao Changpeng stated during a live Q&A on Binance's social platform on Friday that the ongoing accusations blaming Binance for the crash in the cryptocurrency market last October are "far-fetched." He denied that Binance was a key driving factor behind the record liquidation wave and stated that users who suffered losses due to platform system issues during the October market crash have been compensated.
Zhao Changpeng resigned as CEO in November 2023 as part of a settlement with U.S. law enforcement, admitting to failing to maintain an effective anti-money laundering program. Binance Holdings, the parent company, agreed to hire an independent external compliance monitor. Zhao Changpeng was pardoned by Trump in October of last year.
Zhao Changpeng stated that there are still a group of people claiming that the crash was caused by Binance and hoping the platform would "compensate for everything." He emphasized that Binance is a regulated company in Abu Dhabi, and authorities can access the company's activities, while the U.S. government is still monitoring the platform. According to Bloomberg last September, Binance was close to reaching a potential agreement with the U.S. Department of Justice that would allow it to relinquish oversight requirements.
Xu Mingxing: "It's due to Binance's irresponsibility."
Following Zhao Changpeng's remarks on Friday, accusations regarding Binance's role in the market crash continue. Xu Mingxing posted on platform X, stating, "As the largest global platform, Binance, as an industry leader, has massive influence and corresponding responsibility."
Xu Mingxing stated in a post on Friday, "No complexity, no surprises. October 10 was caused by irresponsible marketing activities from certain companies." He accused Binance of triggering a chain reaction of liquidations with the high-yield products for the USDe stablecoin launched in September. This product allowed users to earn a 12% annualized yield on the USDe stablecoin during the promotional period and use the stablecoin as collateral.
Xu Mingxing stated that the product carries "hedge fund-level risks." He believes that traders do not understand the risks of using USDe as collateral for borrowing and increasing bets, falling into a "leverage cycle." He claimed that "even a small market shock is enough to trigger a collapse," as "when volatility hits, USDe quickly de-pegs," leading to liquidation events. Xu Mingxing stated:
"The damage to global users and companies (including OKX customers) is severe, and recovery will take time."