Hotcoin Research | "10·11" Horror Night Review: Reasons, Transmission, Impact and Outlook from Prosperity to Collapse

Author: Hotcoin Research

1. Introduction

In the early hours of October 11, the crypto market experienced a “night of terror.” In just an hour and a half, mainstream cryptocurrencies like Bitcoin saw a short-term double-digit plunge, while altcoins crashed one after another. The liquidation amount in 24 hours reached as high as $19.3 billion, setting the record for the largest single-day liquidation in crypto history.

During the superficially prosperous bull market cycle, countless high-leverage positions, cyclical borrowing, and the bubble created by derivatives laid the groundwork for disaster. A single macro black swan event is enough to trigger systemic risk. When prices collapse, leverage cascades into liquidations, and liquidity evaporates in an instant, what we see is not only a chain reaction of panic but also the “life-and-death test” of the clearing system under extreme pressure.

What caused the “10·11 flash crash”? What risks and hidden dangers were exposed behind it? What impact and insights did it bring to the market? This article will deeply analyze the background reasons, transmission mechanisms, USDe decoupling incident, impact assessment of this plunge, and make predictions and outlooks for the market trends after the fourth quarter of 2025.

II. Background and Reasons for the Plunge

1. Trigger for the plunge: Macro black swan attacks the market

The direct trigger for this plunge comes from a macro-level black swan event — U.S. President Trump unexpectedly announced a 100% new tariff on Chinese goods. On the evening of October 10, Trump took to social media to threaten the implementation of a new round of tariff policies, causing tensions in China-U.S. trade to escalate suddenly. This news sharply heightened global investors' risk aversion, with capital flocking to safe assets such as the U.S. dollar and U.S. Treasury bonds. The announcement was made after the close of trading on Friday when traditional stock markets were already closed, and cryptocurrencies, as high-risk assets, were the first to be sold off.

Emotional factors cannot be ignored either. Concerns about the global economic slowdown and the escalation of trade wars have further deteriorated the already fragile investor confidence. Panic emotions often self-reinforce, creating a cycle of selling - decline - further selling. In addition, the news broke on Friday night (which was already early Saturday morning in Asia), making the timing extremely unfavorable: in both Europe and the U.S. and Asia, most institutional traders have either left their posts or reduced their positions for the weekend. A lack of liquidity during this period combined with unexpected negative news has buried hidden dangers for subsequent flash crashes.

2. Leverage Bubble: The Domino Effect Under False Prosperity

The threat of tariffs from Trump is merely a superficial trigger, while the deeper reason for the market crash lies in the high-leverage bubble and the accumulation of hidden risks that have built up over the past few months.

In the second half of 2025, mainstream cryptocurrencies like Bitcoin and Ethereum repeatedly hit new highs, creating an appearance of prosperity. However, analysis indicates that a significant portion of the incremental funds is not from long-term spot buying, but rather from speculative capital accumulated through contract leverage, borrowing cycles, and liquidity mining. In the bullish market atmosphere, traders generally increase leverage to bet on rising prices, leading to a rapid increase in the position risk of many crypto hedge funds and institutional investors. As prices continue to rise, the actual leverage in the market increases accordingly, yet this is masked by the illusion of prosperity.

When bearish news strikes, this leveraged boom backfires on the market: the first wave of decline triggered by the news directly hits high-leverage long positions, with a large number of leveraged long contracts reaching the liquidation line during the drop and being forcibly liquidated and sold. These forced sell-offs further suppress prices, leading to more long positions being liquidated, with the selling pressure escalating like a snowball, causing hidden high-leverage longs to collapse like dominoes, ultimately evolving into an avalanche-like chain reaction.

3. Market Structure Defects: Weak Liquidity and Market Maker Exits

This flash crash has exposed the structural flaws in the liquidity supply of the cryptocurrency market: market makers are unable to cover extreme situations, and there is a severe lack of liquidity for tail assets. When shocks occur, these weaknesses cause the prices of certain assets to fall almost freely.

The main liquidity providers in the current cryptocurrency market are some proactive market makers (MM). They tend to allocate most of their funds to market making for mainstream assets (such as BTC and ETH), while providing limited liquidity support for mid to long-tail altcoins. Under normal market conditions, the funds can cover daily trading fluctuations, but in extreme conditions, they are unable to provide support at all. Moreover, a large number of new projects have emerged this year, leading to a surge in the number of small tokens, but the funds and energy of market makers have not increased proportionally. The market's liquidity support for small tokens is already overloaded. In other words, the market depth for tail assets is very fragile.

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During the crash on October 11, when macroeconomic negatives triggered panic, market makers, for self-preservation, prioritized ensuring the liquidity of mainstream coins, urgently reallocating funds originally designated for smaller coins to stabilize major assets like BTC and ETH. As a result, the small coin market instantly lost its main counterpart, and the selling pressure came crashing down with no buyers to absorb it, leading to a near free-fall in prices. Multiple coins plummeted by 80-95% in an instant, with the Internet of Things token IOTX once nearing zero, while TUT and DEXE even showed a 99% decline, losing all buyers at one point. This serves as a warning to traders: the normal spreads and trading depth can evaporate in the midst of a storm, and the tail risks often ignored in normal times can tear the market apart during a crisis.

3. Analysis of the Market Flash Crash Transmission Mechanism

When the market began to plummet rapidly in the early hours of October 11, the microstructural issues within the cryptocurrency market further amplified the downward trend. The initial drop triggered a chain of liquidations, compounded by a depletion of liquidity supply, which constituted the main transmission mechanism for the flash crash.

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Stage One (around 5:00): Affected by tariff news, Bitcoin started to decline from about $119,000. Although the trading volume in this stage has increased, it remains within a normal range, and the market is still operating in an orderly manner, with market makers maintaining normal buy-sell spreads. Major coins are slowly declining, and some highly leveraged longs are beginning to liquidate, but the impact is relatively limited.

Phase Two (around 5:20): About 20 minutes later, the market suddenly experienced a liquidation waterfall. The decline in altcoins accelerated sharply, with many small to mid-cap cryptocurrencies plummeting within minutes, triggering a new wave of forced liquidations. Observations show that at this time, the overall market trading volume surged to ten times its usual level. More dangerously, major market makers appeared to begin rapidly withdrawing orders for self-protection, causing many trading pairs to instantly lose buying support. During this phase, market liquidity significantly contracted, and selling pressure began to go unmatched.

Phase three (around 5:43): About 23 minutes after the first wave of liquidation, a more dramatic decoupling crash occurred on Binance. Three specific assets within the Binance exchange, USDe, WBETH, and BNSOL, experienced price crashes almost simultaneously:

The price of the USDe stablecoin collapsed from $1 to about $0.6567, a drop of 34%. Meanwhile, on other trading platforms, USDe remains above $0.90 and has not experienced such an extreme de-pegging.

WBETH (Binance Staked Ether) price has plummeted dramatically, dropping by as much as 88.7%, collapsing from a price of around $3,800 to just about $430.

BNSOL (Binance version SOL token) also experienced a crash, plummeting 82.5% from a normal price of about $200 to a low of $34.9.

This scene marks a complete collapse of the market structure, with buyer liquidity on Binance nearing exhaustion, the price discovery mechanism failing, and even stablecoins and pegged assets suffering a brutal踩踏.

Final Stage (around 6:30): As major assets decoupled and market makers completely withdrew, the market fell into a state of disorder around 6:30. The price of cryptocurrencies fluctuated significantly in panic, and the total liquidation amount across the network surged sharply. By 9 AM, the 24-hour liquidation scale had exceeded 19.2 billion USD, with approximately 1.64 million positions being forcibly liquidated. Among them, the largest single liquidation loss exceeded 200 million USD. The entire collapse process from the news trigger to market loss of control took only about one and a half hours.

4. The USDe Stablecoin Decoupling Incident

The notable episode during this flash crash was the “de-pegging” crisis of the new synthetic dollar stablecoin USDe. However, this significant deviation of USDe is not a typical systemic failure of a stablecoin, but rather resembles a price misalignment caused by localized liquidity depletion on the exchange.

USDe is a synthetic dollar asset launched by Ethena, which maintains a 1:1 peg to the US dollar through a delta-neutral strategy of cash and perpetual contracts (i.e., “spot long + perpetual short” strategy) for hedging arbitrage. It is essentially an over-collateralized stablecoin: users need to provide sufficient collateral to mint USDe, and the protocol hedges against price fluctuations by holding spot and shorting futures. Under normal circumstances, USDe can be stably exchanged in on-chain liquidity pools (such as Curve, Uniswap), and supports a minting and redemption mechanism to ensure price anchoring. Prior to the market crash, the circulating supply of USDe was approximately $9 billion and it maintained an over-collateralized status.

During the market's extreme volatility, the USDe/USDT trading pair on the Binance exchange experienced an abnormal plummet, with the USDe price briefly dropping to around $0.6567. However, almost simultaneously, the USDe remained stable on other major trading venues (including the decentralized trading pool Curve and another major exchange Bybit): the price difference of USDe against other stablecoins in the Curve pool was less than 1%, and on the Bybit platform, USDe only dipped to around $0.92. Clearly, this is not due to the USDe protocol itself losing its peg, but rather a localized phenomenon on the Binance platform.

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The main reasons for the sharp drop in the price of Binance USDe are twofold:

Liquidity shortage and infrastructure defects: Binance is not the main trading market for USDe, and the liquidity of USDe on its platform is only in the tens of millions of dollars, which is much shallower compared to places like Curve that have pools of over a hundred million dollars. Normally, professional market makers can arbitrage between platforms through the minting/redeeming mechanism of USDe to ensure price consistency. However, Binance did not establish a direct redemption channel with the Ethena team at that time, and there were also temporary obstacles in deposits and withdrawals on Binance during extreme market conditions. As a result, when Binance's own infrastructure was overwhelmed during the crash, and the market price deviated without being corrected in a timely manner by external liquidity, the buy orders for USDe on Binance were quickly exhausted, causing sell orders to push the price below the peg.

Risk control and oracle design issues: Binance adopts a unified margin account system where different assets share a margin pool. When the price of USDe plummets, a large number of accounts using USDe as margin are instantaneously liquidated, and the liquidation further exacerbates the selling pressure on USDe, creating a vicious cycle. In addition, Binance's risk control for the price of USDe uses the relatively shallow order book prices of its own exchange as oracle prices, without referencing external deep market prices such as those from Curve. This leads to a sharp drop in the marked price of USDe on Binance, triggering automatic deleveraging and a series of liquidations, further amplifying the price decline.

USDe Circular Lending High Leverage Risk: In addition, Binance offers high-yield financial products for USDe (12% annualized) to encourage users to engage in circular borrowing, which has led a large number of users to perform circular operations of USDe collateralized lending, hiding up to 10 times the leverage exposure. Furthermore, many traders use USDe as a universal margin, resulting in a high concentration of collateral.

Overall, the drastic fluctuations of USDe on Binance are merely an illusion of “appearing to be unpegged.” In fact, throughout the turmoil, the over-collateralization status of the USDe protocol remained sound, and the redemption mechanism operated normally. When the price on Binance crashed, market participants quickly reduced the supply of USDe from around 9 billion to 6 billion through redemptions, and there were no deadlocks or bank runs during the entire process.

This incident has also sounded the alarm for exchanges and stablecoin issuers: the balance between transparency and security is crucial. On one hand, Ethena provides transparent data and a public mechanism for USDe, ensuring market confidence; on the other hand, exchanges need to improve their risk control models, especially for assets that are not their primary trading market, by using more robust oracle sources or restricting unreasonable liquidations during extreme market conditions. Binance also quickly patched the loophole after the incident: the pricing mechanism update for WBETH and BNSOL, originally scheduled to take effect on October 14, was completed ahead of time on October 11, and nearly $400 million in losses were compensated to affected users due to the USDe incident. These measures have somewhat quelled market doubts but also highlighted the vulnerability of centralized platforms during extreme market conditions. In contrast, decentralized platforms like Curve offer deeper liquidity, and protocols like Aave operate their automatic liquidation mechanisms smoothly, demonstrating the resilience of DeFi in coping with extreme volatility.

V. Impact Assessment: Aftershocks, Damage, and Opportunities for Change

Such a drastic market change, although some effects may take weeks to fully digest, we can already see some widespread impacts on the industry:

1. Altcoin Season Confidence Hurt: This incident has created “big winners” and “big losers.” For those investors, funds, and even market makers who suffered significant losses, their confidence will undoubtedly be shaken and morale greatly damaged in the short term. Some crypto hedge funds may face liquidation or severe losses as a result. Arthur, the founder of DeFiance Capital, revealed that although their fund has incurred losses, it “does not rank among the top five most volatile days in history” and is still manageable. He also candidly stated that this crash has caused a major setback for the entire crypto space, particularly severely impacting the altcoin market, as the price discovery of most altcoins relies on offshore centralized exchanges. This may prompt some professional funds to reduce their exposure to altcoins and turn to more reliable investment targets. In the short term, the altcoin sector may continue to remain sluggish, and the pessimistic sentiment that “altcoin season may not come anymore” has started to spread.

2. Response and Improvement of the Trading Platform: This incident has caused a certain impact on the reputation of exchanges, especially Binance, and has forced the platform to reflect and improve.

Compensating user losses: After the incident, Binance not only compensated user losses but also quickly completed the switch of the WBETH/BNSOL pricing system to avoid similar pegging price discrepancies in the future.

Expand the insurance fund: Exchanges like Binance may accelerate plans to expand the scale of their insurance funds in order to better cope with extreme market fluctuations. Hyperliquid has also announced that it will inject a portion of its daily revenue into a larger insurance pool to enhance the platform's risk resistance.

Adjustment mechanism defects: At the same time, Binance may re-evaluate its unified margin model and oracle mechanism to prevent a recurrence of similar forced liquidations triggered by the mispricing of USDe.

Introducing a circuit breaker mechanism: when prices plummet beyond a certain percentage within a short period, trading is temporarily halted to allow for a cooling-off period, letting liquidity recover. This is already a standard practice in traditional finance, and the crypto industry may need to take a cue from it. Of course, balancing the circuit breaker with the characteristic of 24-hour continuous trading is a challenge.

3. The advantages of decentralized finance are highlighted: During this turmoil, the DeFi sector has withstood the test, showcasing its strengths. Leading protocols like Aave performed robustly during large-scale liquidations, with $180 million in liquidations completed smoothly without human intervention, proving the reliability of smart contracts. Decentralized exchanges like Uniswap saw a surge in trading volume while continuously providing liquidity without experiencing any delays or major failures. Stablecoin pools like Curve successfully mitigated the impact of USDe, maintaining stable coin prices. This has led more people to reflect: Should the core infrastructure of the crypto market be more decentralized?

4. Regulatory and Compliance Impact: Such a drastic flash crash is bound to attract the attention of regulatory agencies. On one hand, regulators may accelerate the establishment of requirements regarding leverage limits and risk reserves to restrict retail investors from excessive leverage and to prevent systemic risks. On the other hand, if there is indeed evidence of deliberate market manipulation, legal authorities in various countries may intervene to investigate and hold accountable the institutions or individuals involved. The U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have repeatedly warned about the risks of manipulation in the crypto market in recent years, and this incident may serve as evidence for them to push for stricter regulation. For exchanges, strengthening compliance and transparency will become more urgent; otherwise, investor confidence and compliance qualifications may be affected.

5. Changes in Investor Psychology and Strategies: “312”, “519”, and now “10·11”, each devastating crash has been a milestone event in the cryptocurrency market, profoundly affecting investor psychology. After this battle, many retail and institutional investors will reassess their risk management strategies. In the near future, the leverage usage rate in the market may decline, and the preference for funds will shift from high-risk small coins to relatively stable blue-chip coins and core assets like Ethereum. Furthermore, some users heavily invested in a single exchange may begin to diversify their trading venue risks. These behavioral changes will gradually shape a more mature and rational market ecology.

In summary, the direct damage from the sharp decline on October 11th is enormous, but in the long run, it may also create an opportunity for the industry to improve. On the surface, this is an unexpected event caused by a macro black swan, but what truly led to the market collapse is the long-term accumulation of leverage illusions and structural defects. If the cryptocurrency industry can reform its leverage, liquidity, and risk control frameworks, this disaster may transform into a turning point for healthy future development.

6. Market Outlook: Risks and Opportunities Coexisting in Q4 Market

After experiencing this baptism, where will the cryptocurrency market go in the fourth quarter of 2025? Looking ahead, we need to recognize both the risks and challenges, as well as seize the potential opportunities:

1. Short-term aftershocks and bottoming expectations: After a sharp decline, there is usually a risk of aftershocks. In the coming weeks, it is possible that some “aftereffects” news will gradually emerge, such as individual funds facing liquidation or project teams experiencing a break in their funding chain. These secondary negative factors may repeatedly impact market sentiment. However, as long as there are no larger storm events, the market is expected to gradually digest the negative effects. After this large-scale deleveraging, the selling pressure in the market has been greatly released, and concentrated selling often indicates the approach of a phase bottom area. If there are no new black swans later, mainstream coins may complete bottoming in the midst of fluctuations, and sentiment is expected to slowly recover.

2. Macroeconomic Variables: Macroeconomic factors remain key to influencing the Q4 market. It is essential to continuously monitor the China-U.S. trade friction and the direction of global risk appetite. If Trump's tariff threats are not a “one-off deal” but lead to substantial trade retaliation from both sides, then global risk assets will come under pressure, and the crypto market will find it hard to stand alone. Conversely, if tensions ease or the news is digested by the market, the crypto market is expected to restore its operational logic. Additionally, the Federal Reserve's monetary policy and inflation data will also play a role in Q4. If inflation remains under control, and the Federal Reserve hints at halting interest rate hikes or even has expectations for easing, risk assets may overall see a boost.

3. Market Structure Improvement and Opportunities: After this reshuffle, the market leverage ratio has significantly decreased. Bitwise's report mentions that approximately $20 billion in leverage was wiped out during the plunge, marking the largest leveraged cleanout in crypto history. However, it is fortunate that no core institutions collapsed and there was no systemic crash, preventing a long-term downturn. Long-term driving factors such as institutional entry, the popularity of stablecoin payments, and the on-chain transformation of traditional assets are still progressing. In the short term, after the entire market deleverages, it is actually healthier; the subsequent rise will have a more solid spot foundation to support it. If new incremental funds enter the market, it will not require as much effort to combat stubborn bullish leverage resistance as before, which may make future rebounds lighter.

4. Possible rebound catalysts: Looking ahead to Q4, potential favorable catalysts are also worth paying attention to. For example, the progress of the approval for diversified cryptocurrency asset ETFs is expected to see regulatory decisions around the end of the year; if approved, it would be a significant positive development. Additionally, the network upgrades in the Ethereum ecosystem this year, the development of Layer 2, breakthroughs in new applications such as AI and RWA, could reignite market enthusiasm. If no major negative news occurs and the aforementioned positives emerge, mainstream coins are expected to regain upward momentum at the end of Q4 or in early 2026.

5. The cryptocurrency landscape is further differentiating: the rebound potential after the crash may vary significantly across different sectors. Bitcoin, Ethereum, and others, as the market cornerstones, may see an increase in market share after this turmoil. Investors may prefer to allocate funds to these assets with stronger “resilience to shocks,” hoping they will recover and hit new highs first. Meanwhile, the altcoin sector may continue to remain sluggish in the short term. It is challenging for altcoins to replicate the collective surge of the “altcoin season”; only a few high-quality projects with substantial positive news may continue to strengthen.

Conclusion: The crash on October 11, 2025, will be recorded as another “anniversary” in the history of cryptocurrency development. This market nightmare, triggered by macro black swans and exacerbated by the collapse of leverage bubbles, has provided all participants with a thrilling lesson in risk education. Regardless of whether there were orchestrators behind it, we have seen two faces of the crypto market: one is the fragile high leverage and low liquidity that makes it vulnerable in extreme situations; the other is the resilient operation of decentralized finance, the market's self-repairing ability, and investors' faith in long-term value, which supports this emerging market through its darkest moments. Looking ahead, the crypto market will gradually mature through regulatory adjustments and its own innovations. As investors, we must remain vigilant in times of peace, always remembering the iron rule that “survival is the key to the future,” while also maintaining confidence in the industry's innovation and growth. Wishing everyone a smooth and safe investment journey in this ever-changing market.

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