The October 11, 2025 Crypto Market Crash: Situation Overview

Introduction

In less than 24 hours, nearly $17B in long positions were wiped out, affecting about 1.6M traders. The crash was characterized by extreme price volatility, with major assets like Bitcoin (BTC) dropping 13% in one hour, Ethereum (ETH) – 16%, and many altcoins collapsing by 50–90%. Tokens like ATOM and RVN on the Binance spot market briefly approached near-zero values, while others such as SUI, APT, SEI, LINK, and ADA lost 80% or more in minutes.

The event erased about $370B from the total crypto market capitalization, reducing open interest by $65B and resetting market positioning to levels last seen in July 2025.

Liquidity evaporated on centralized exchanges (CEX) and decentralized finance (DeFi) protocols, leading to wide price discrepancies between platforms – for example, spreads of $300 on ETH-USD pairs between Binance and Hyperliquid. Although prices recovered from lows by October 12, the incident exposed systemic vulnerabilities in exchange infrastructure, collateral valuation, and leverage usage.

Main Causes and Triggers

The crash was multifaceted, combining macroeconomic pressures, specific exchange vulnerabilities, and coordinated market manipulations. Key triggers included:

Macroeconomic Shocks

• On October 9, 2025, China's Ministry of Commerce imposed new restrictions on the export of rare earth metals, critical for technologies such as semiconductors, electric vehicles, and renewable energy. This disrupted global supply chains, particularly affecting tech-oriented indices like NASDAQ and S&P 500, which lost significant value.

• On October 10, former US President Donald Trump announced via Truth Social a proposal to impose 100% tariffs on Chinese goods. This escalated trade tensions between the US and China, triggering a broader market sell-off. The S&P 500 erased $1.2T in capitalization within 40 minutes, and the US Dollar Index (DYX) strengthened as investors fled to safe-haven assets. This amplified risk-off sentiment.

These events created a backdrop of heightened volatility, where overleveraged markets were susceptible to cascades.

Exchange Vulnerabilities and Exploitation

A central issue was a flaw in Binance's Unified Account system, which allowed assets like USDe (Ethena's synthetic stablecoin), wBETH (wrapped staked ETH), and BNSOL (Binance-staked SOL) to be used as collateral for margin and futures trading. Valuation was based on internal Binance spot order book prices, rather than external oracles or redemption prices, creating an exploitable loophole.

• On October 6, 2025, Binance announced a transition to oracle-based pricing to eliminate this, but implementation was delayed until October 14, leaving an eight-day vulnerability window.

• During the crash, the de-peg of  USDe, wBETH, and BNSOL on Binance, driving USDe's price locally to $0.65 (while it remained around $1 on other exchanges). This depeg instantly undermined collateral values, triggering $500M to $1B in forced liquidations on Binance alone.

The exploitation resembles the LUNA-UST crash in 2022.

Leverage and Systemic Overextension

Markets were overloaded with leverage, with funding rates at extreme highs and open interest at record levels. When prices moved sharply, margin positions exhausted their collateral, and a cascade of liquidations began. Auto-deleveraging (ADL) mechanisms were activated on platforms like Binance, OKX, Bybit, and Hyperliquid.

ADL forcibly closes profitable positions to cover losses when insurance funds are depleted, prioritizing positions with high leverage and high profit. On Hyperliquid, this affected about 0.5–1% of positions, stabilizing the system but taking profits from winners.

In DeFi, protocols like Aave and Morpho faced oracle update delays, causing temporary depegging of collateral like stETH and USDe. Aave hard-pegged USDe at $1 to prevent billions in liquidations, but still recorded ~$180M in liquidations and ~$20M in bad debt, covered by reserves. Morpho saw ~$100M liquidated.

Who Was Affected: Liquidated Parties and Consequences

The crash disproportionately affected leveraged traders and entities relying on vulnerable collateral:

Retail and directional traders:

Over 1.6M accounts liquidated, with $16.6B from longs. 

• Hyperliquid – $10,28B

• Binance – $4,27B

• OKX – $2,6B

• Bybit – $1,8B

• HTX – $800M

DeFi Users

Aave processed ~$180M in liquidations. Morpho ~$100M. Collateral depegs led to "liquidation cycles" in protocols like Etherfi and Pendle, where assets were sold at depressed prices.

Funds and VCs

Market-neutral funds and "C-tier trading teams" faced operational risks, including algorithm failures and exchange downtime. Speculation arose about a major trading fund or market maker blowing up, given the scale of dysfunction.

• ABC, the leading market-maker on Hyperliquid, today lost more than $35 million, wiping out 73% of the account. On most days, ABC accounts for 20-25% of Hyperliquid's total volume.

• Cyantarb (market-maker) – fully liquidated on Hyperliquid, closing ~$100M in positions and losing $18-19M outright.

• Selini Capital, a hedge fund which had three sub-accounts liquidated for a total amount of $50-70 million, of which $16 million were lost in one night. It is among the leaders in losses on Hyperliquid.

Broader ecosystem

Yield farmers and stakers using wrapped assets lost 90-100% of deposits in seconds, even if underlying assets recovered. Tokens like IOTX briefly fell to zero.

Some altcoins saw 40-50% of supply concentrated in a few addresses post-crash, indicating forced sales.

Who Benefited: Beneficiaries of the Chaos

Attackers and whales: Coordinated shorts on Hyperliquid yielded ~$192M from $1.1B in BTC/ETH positions, depositing $110M USDC from Arbitrum network wallets.
A prominent whale closed 90% of a short for $190-200M profit, then reopened a short for $161M in BTC.

A dormant 2011 BTC whale earned $160-200M from $900 million – $1.1B in leverage.
The "Hyperliquid Short Squad" of 15+ traders earned ~$300M.

Consequences and Reactions

• Binance Actions: Acknowledged issues, compensated affected users, and accelerated oracle integration with minimum price floors.

• Market Reset: Leverage flushed, funding rates normalized, and liquidity thinned, making assets more sensitive to volume (e.g., $1M moves SOL pairs 10–15%).

Conclusion

The October 11, 2025 crash was presumably not random, but a targeted exploitation of a collateral valuation flaw on Binance, amplified by macroeconomic shocks and excessive leverage.

It led to unprecedented liquidations exceeding $19 billion, clearing weak positions and concentrating assets among survivors. While attackers and exchanges earned huge sums, millions of traders suffered massive losses, underscoring the fragility of crypto markets.

The incident serves as a stark reminder of the need for robust oracle systems, prudent leverage, and diversified collateral to prevent future cascades.