The crash on October 10 became the largest liquidation event in the history of the crypto market. According to CoinGlass, the total liquidation amount exceeded $19 billion, with the total open contracts sharply decreasing by $65 billion. This figure far surpasses other notable liquidation events, such as the $1.2 billion liquidation during the COVID-19 pandemic and even the $1.6 billion liquidation during the FTX collapse.
After the event, investigators generally believe that the pricing oracle vulnerability at Binance was at least part of the reason for this incident. The collateral value of three pegged cryptocurrencies—USDE, bnSOL, and wBETH—was determined by Binance's internal order book data rather than external oracles. This put users of the "Unified Account" feature at risk of liquidation during market anomalies.
The vulnerability may have faced an organized attack on October 10, but current evidence has not been fully confirmed. In the chain liquidation, the liquidation amount of USDE was about $346 million, far exceeding wBETH's $169 million and bnSOL's $77 million. The large-scale withdrawal of buyer liquidity from stablecoin trading pairs is particularly concerning.
Cointelegraph Research, in collaboration with AI-driven market analysis company Rena Labs, exclusively obtained detailed data. This article delves into the unusual activities in the USDE/USDT trading pair.
Rena's anomaly detection engine recorded one of the most severe and complex market dislocations in stablecoin trading history. Surprisingly, the collateral security of USDE was not questioned, unlike the previous decoupling of UST and USDC. The minting and redemption of USDE continued normally. However, professional market makers withdrew liquidity from this trading pair on a large scale. Part of the reason was that the automated risk scoring system actively withdrew quotes to reduce risk exposure.
Before the crash, USDE's average total liquidity was $89 million, with a relatively balanced buy-sell order structure. However, between 21:40 and 21:55 UTC, the liquidity of this trading pair on Binance plummeted by nearly 74%, dropping to about $23 million. By around 21:54, market depth had almost completely vanished. Total liquidity fell to just $2 million, with market makers essentially withdrawing. This was followed by a widening of the bid-ask spread to 22%.
The market lost structural integrity during the crash. Trading volume surged 896 times as seller depth collapsed by 99%. This imbalance pushed USDE's price down to $0.68 on the Binance spot market, while it remained near the peg on other exchanges.
During the 10-minute crisis, trading intensity increased nearly 16 times compared to the normal rate of 108 trades per minute. It peaked at almost 3,000 trades per minute, with 92% being sell orders. Many of the orders were attributed to panic selling, stop-loss triggers, and forced liquidations.
Rena's anomaly detection engine identified unusual activities even before the USDE liquidity crisis erupted. Around 21:00 UTC, the system reported 28 anomalies, with the anomaly rate being four times that of the previous hour. The recorded anomalies included abnormal spikes in volume, price, and trading intensity, as well as suspicious bursts, clusters, and consecutive trading sequences. The system also detected various characteristics of order fraud.
Three significant fluctuations in large orders can be found in the order book size configuration before the crisis. These orders were placed after BTC had already begun to decline on major exchanges, but before USDE had entered a liquidity crunch.
This event highlights the vulnerabilities and leverage still present in the crypto market, where chain liquidations can wipe out seemingly safe trades. Just like the 99% drop of some altcoins during the crash, the decoupling of USDE indicates a lack of organic demand in the market to support many tokens. In the absence of large market makers like Wintermute, the order books of many crypto assets show little resilience.
Related: Analysts say "Uptober" is still expected to materialize after last week's major liquidation event.
Original article: “Exclusively obtained order book data reveals details about USDE crash”
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