Billions in liquidations: what happened?

Friday, 10 October marked one of the most severe systemic crises in crypto’s history, as a $19 billion liquidation wave followed Donald Trump’s announcement of a 100% tariff on Chinese imports. Bitcoin plunged as low as $104,782.88 during the 10–11 October period, down more than 14% from its Friday high of $122,574.46. Meanwhile Ether fell 12.2% to $3,436.29. Smaller tokens suffered the most: Cosmos’s native token, ATOM, for instance, briefly collapsed from $4 to $0.001 on Binance.

This was no ordinary correction. The event was nine times larger than the February 2025 crash and 19 times greater than both the March 2020 meltdown and the FTX collapse of November 2022.

How did it happen? Understanding the mechanics of a liquidation cascade

Leveraged trading amplifies both gains and losses in crypto markets. When investors use borrowed funds, their collateral values become critical: once prices start to drop, portfolio margining and cross-coin collateralisation tighten margin requirements, triggering automatic sell-offs. What begins as a single shock quickly spirals into a chain reaction — a liquidation cascade.

The sequence typically unfolds as follows: an initial shock sparks panic selling, pushing leveraged traders closer to their liquidation thresholds. As margin pressure builds, exchanges begin forcibly closing positions to prevent insolvency, which deepens the sell-off. Liquidity providers and market makers pull back, widening spreads and further draining order books. Each forced sale triggers the next, creating a self-reinforcing cycle of cascading liquidations. Eventually, when most positions have been flushed out, opportunistic buyers step in at steep discounts, forming a dramatic recovery wick — the visual hallmark of capitulation and reversal.

What made the October crash so violent?

The amplitude of the 10–11 October collapse can be explained by market makers’ behaviour. According to analytics firm Coinwatch, major liquidity providers slashed risk exposure and withdrew liquidity entirely, leaving order books dangerously thin. In this vacuum, exchanges were forced to activate their automatic liquidation systems (ADL) to stay solvent.

When a trader’s position falls below the maintenance margin, exchanges automatically liquidate through the order book. If the execution price exceeds the bankruptcy level, excess funds go to the insurance fund; but when those reserves are depleted, exchanges start liquidating other participants — even profitable ones — to prevent systemic loss. These funds act as buffers against bad debt in illiquid conditions. For instance, Hyperliquid activated its ADL mechanism for short positions during the crash — and did so effectively, catching the market bottom. Another exchange, Lighter, meanwhile, avoided activation thanks to sufficient insurance reserves.

Technical strain compounded the chaos

As liquidity vanished, infrastructure buckled. Centralised and decentralised exchanges alike reported API failures, latency spikes, halted deposits, and outright downtime. Binance cited “systems under heavy load” and “intermittent delays,” while Lighter admitted to a “serious outage” between 10:30 p.m. and 3 a.m. EST. dYdX was offline for nearly eight hours. Among major venues, only Hyperliquid appeared to maintain stable performance, a rare show of resilience during the storm.

The depeg domino

Several wrapped and synthetic assets also lost their peg on Binance, including USDe, BNSOL (a Solana wrapper on BNB Chain), and WBETH (a wrapped ETH derivative). USDe, a stablecoin meant to hold parity with the U.S. dollar, fell to $0.65. Binance confirmed that its pricing relied on internal spot markets rather than external oracles, creating a window for arbitrage exploitation. Traders dumped these assets in high volume, depressing their prices and triggering further liquidations since they were widely used as collateral.

Notably, this mispricing incident preceded Trump’s tariff announcement, which itself came shortly after a large short position was opened on Hyperliquid, fuelling speculation of a coordinated attack. For now, such claims remain unverified rumours.

Bottom line: overleverage always ends the same way

The episode reveals a market stretched thin by excessive leverage. As Charlie Munger once stated: “Smart men go broke 3 ways - liquor, ladies, and leverage.” A single spark was enough to ignite forced unwinds across billions in open interest. Liquidation cascades are liquidity crises, not fundamental revaluations, and cross-asset collateral only magnifies their violence. Data from Amberdata shows open interest across futures markets collapsed from $175 billion to $125 billion in less than a day.

The officially reported $19 billion liquidation total is likely understated: real losses could exceed $50 billion.