A combination of factors converged into a perfect storm on Friday, triggering the cryptocurrency industry’s largest liquidation event in history and briefly sending Bitcoin (BTC) below $110,000.
The $19 billion in liquidations doesn’t mean investors lost that sum of money, but rather that leveraged positions were forcibly closed.
The unrealized loss can be better observed through the drop in market capitalization, which shows a $450-billion wipeout. From Friday to Sunday, the total cryptocurrency market capitalization fell from $4.24 trillion to $3.79 trillion. At the time of writing, the market has already rebounded above $4 trillion.
Pundits are still piecing together how a mix of macro shocks, exchange mispricing and overleveraged positions converged to trigger the industry’s largest daily liquidation. Here’s what we know so far.
Tariff shock ripples through global and crypto markets
On Friday, US President Donald Trump escalated the ongoing trade war that has defined much of his term, threatening a 100% tariff on Chinese imports starting Nov. 1, “or sooner, depending on any further actions or changes taken by China.”
In crypto, some analysts believe the market downturn that same day was triggered by an industry-specific price oracle malfunction rather than Trump’s tariff threat. However, a comparison with traditional finance indexes reveals that the sell-off was not confined to crypto.
The Nasdaq-100, which tracks 100 top non-financial companies, led the decline among major US indexes with a 3.49% drop by Friday’s closing bell. The S&P 500 fell 2.71%, while the Dow Jones Industrial Average, comprising 30 blue-chip companies, lost 1.9%.
Bitcoin outpaced them all on the downside, sliding 3.93% during regular trading hours and continuing to bleed after US markets closed.
Binance’s oracle glitch blamed for crypto meltdown
Though Trump’s tariff announcement triggered the broader market sell-off and Bitcoin’s weekend tumble, industry-specific factors amplified the damage once traditional markets had closed.
One of the key flashpoints was USDe, Ethena’s synthetic dollar, which maintains its peg to the greenback through a delta-neutral strategy in the perpetual futures market. On Friday, USDe appeared to lose parity, plunging to $0.65, but that was primarily visible on Binance. Across other exchanges, USDe traded with the kind of mild volatility typical of dollar-pegged tokens during turbulent market conditions.
According to an analysis by X user YQ, the crash was sparked by a USDe sell-off that exposed flaws in Binance’s unified-margin oracle. The system priced collateral assets such as USDe, wBETH and BNSOL using Binance’s own spot order books, which sharply marked them down in real time. This triggered a chain of liquidations that drained liquidity across interconnected venues. Other platforms that referenced Binance’s prices followed suit, even though USDe and related assets were trading normally elsewhere. YQ described the incident as an oracle failure, not a conventional market crash.
In a separate analysis, Haseeb Qureshi, managing partner at crypto investment fund Dragonfly, said that USDe never actually depegged, noting that its deepest liquidity sat on Curve, where prices deviated by less than 0.3%. On Binance, API failures and the absence of a direct mint-and-redeem channel with Ethena prevented market makers from restoring the peg.
It’s too soon to single out Binance for the latest crypto crash
Delphi Digital analyst Trevor King said that Binance made a first-principles error by valuing wrapped assets like wBETH, BNSOL and USDe based on its own spot prices rather than their underlying redemption values, causing collateral to appear far weaker than it was and triggering mass liquidations.
Related: ‘Uptober’ marks 21 crypto ETF filings as Bitcoin climbs
As Binance’s oracle became the de facto “price of record” across the leveraged trading ecosystem, those mispriced feeds spread to other exchanges and decentralized exchanges (DEXs). However, the analyst said he is still cautious about pointing the root cause to Binance, as the timing of the initial cascade deserves further attention.
That is also part of Binance’s defense. The exchange said in a statement that “core futures and spot matching engines and API trading remained operational” during the event and claimed that volatility was “mainly driven by overall market conditions.”
However, the exchange admitted that not all of its modules performed as they should have:
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 announced that $283 million has been distributed in two batches to compensate impacted clients. Binance’s token, BNB (BNB), surged to a new all-time high on Monday.
Binance updated its margin price feeds for wBETH and BNSOL on Saturday, switching their valuations from Binance’s own spot prices to the official staking conversion ratios. The change was originally scheduled for Tuesday, Oct. 14, but was implemented earlier following the market turmoil.
Hyperliquid defends its role in the $19-billion crypto liquidation
Hyperliquid is the rising star of crypto and the top DEX for perpetual volume, according to DefiLlama, a data provider that recently dropped Aster’s data over integrity concerns. Aster, a Hyperliquid rival, is backed by Binance’s investment arm, YZi Labs.
Related: Aster delisting exposes DeFi’s growing integrity crisis
Hyperliquid was also listed as the leading venue where most liquidations occurred during the $19-billion cascade, prompting Kris Marszalek, CEO of Crypto.com, to call for an investigation into top derivatives platforms.
Hyperliquid founder Jeff Yan defended his exchange by stating that it functioned as designed, maintaining 100% uptime and zero bad debt throughout the turmoil.
He explained that the liquidations were not caused by a system failure but by excessive leverage during a rapid market downturn that saw many altcoins fall more than 50% in minutes. Hyperliquid’s liquidation process first attempts to close undercollateralized positions through its order book, then relies on Hyperliquid Liquidity Provider vaults as backstop liquidators. If both fail, the exchange invokes auto-deleveraging, a mechanism that closes profitable positions on the winning side to maintain solvency.
Yan also pushed back against critics, accusing rival exchanges of deflecting blame.
“Solvency and uptime are the two most important properties of a financial system,” he said, calling attempts to “gaslight users” about Hyperliquid’s performance unethical. He contrasted Hyperliquid’s onchain transparency with the opaque liquidation practices of centralized exchanges, arguing that the episode demonstrated the resilience of its margin system rather than a flaw.
Hyperliquid whale’s short bet just before crypto crash disaster
Over 250 wallets have lost millionaire status on Hyperliquid since Friday’s collapse, according to HyperTracker. Several wallets have since been dubbed “Hyperliquid whales,” but one in particular has drawn fresh scrutiny for its uncanny timing and extraordinary profits.
A whale trader on the derivatives DEX caught attention after opening a short position just minutes before Trump’s tariff announcement on Friday, earning them $192 million in profit.
On Sunday, the same wallet opened another enormous bet: a $163-million short against Bitcoin using 10x leverage, already showing about $3.5 million in profit. The position will be liquidated if Bitcoin rises to $125,500.
The timing of these trades has led many in the crypto community to label the trader an “insider whale,” with some speculating that their positions may have even contributed to the $19-billion liquidation cascade over the weekend.
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