Key Points:
Some altcoins, including Cosmos's ATOM token, briefly dropped to near zero on Binance during the cryptocurrency market crash on Friday.
These altcoins still have actual market value on other centralized cryptocurrency exchanges.
On October 10, the cryptocurrency market experienced its most severe drop since the FTX collapse, with a total market capitalization shrinking by approximately $850 billion within hours.
Bitcoin (BTC) fell about 10%-15%, dropping from a high of nearly $124,000 to a low of $105,000. In contrast, altcoins performed even worse, especially those traded on Binance, with many coins plummeting 99.99%-100% within minutes.
This includes tokens like Cosmos (ATOM), IoTeX (IOTX), and Enjin (ENJ), which briefly saw their prices drop to zero on Binance.
In comparison, ATOM fell 53% on competing exchanges, while IOTX and ENJ dropped 46% and 64.5%, respectively. However, they did not fall to zero elsewhere; this phenomenon occurred only on Binance.
During the crash from October 9 to 10, approximately $20 billion in cryptocurrency positions were liquidated, which is 20 times the amount during the market crash in 2020 due to the COVID-19 pandemic. Over 1.6 million traders had their positions liquidated due to leveraged margin calls.
Many traders used leverage (borrowing) on Binance to increase profits.
Arthur Hayes, co-founder of BitMEX, stated that major exchanges, including Binance, were "liquidating collateral associated with cross-margin positions," which exacerbated the sell-off.
In simple terms, when prices began to fall, Binance automatically sold altcoins used as collateral to cover losses. This led to more selling pressure, causing prices to drop even faster.
As prices plummeted, Binance's trading system became overloaded. Some users reported frozen accounts, unexecuted stop-loss orders, and trading delays.
Meanwhile, some analysts indicated that due to these delays, market makers like Wintermute withdrew from Binance.
This meant that for a brief moment, there were no buy orders, causing the system to display some tokens' prices as "zero," even though these tokens still had value elsewhere.
Similar "flash crashes" occurred in 2017 when Ethereum briefly dropped to $0.10 on GDAX due to a surge in automatic sell orders.
Binance co-founder He Yi (Chief Customer Service Officer) issued an apology, stating that "some users encountered issues during trading amid extreme volatility and a surge in platform traffic."
CEO Richard Teng also apologized, stating:
Binance announced that it would compensate verifiable losses directly related to platform or system failures, clarifying that losses due to price fluctuations or unrealized gains are not covered.
Related: Ethereum (ETH) is expected to return to $4,500 as the futures market stabilizes after the cryptocurrency flash crash.
Original: “Why Did Some Altcoins on Binance Crash to Zero?”
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