Author: Zhang Yaqi, Wall Street Insights

The world's largest cryptocurrency exchange, Binance, attributed the record $19 billion liquidation event on October 10 of last year to a resonance of macro risk shocks, high leverage, and liquidity exhaustion, denying that core trading system failures were the main cause. However, this explanation failed to quell industry doubts about its marketing strategies and market influence.

Binance released a report on Saturday stating that the global market was already under pressure due to news of Trump’s tariffs, and over $100 billion in Bitcoin derivatives open contracts, a rapidly shrinking order book, and blockchain congestion collectively triggered a chain liquidation. The exchange acknowledged specific issues on two platforms but emphasized that about 75% of the liquidations occurred before its index deviation and has compensated users over $328 million.

Binance co-founder Zhao Changpeng denied in a live Q&A on Friday that the platform was a key driver of the liquidation wave, calling the related accusations "far-fetched." He stated that users who suffered losses due to platform system issues have been compensated, and that Binance, as a company regulated in Abu Dhabi and still under U.S. government scrutiny, operates with transparency.

However, competitor OKX's CEO Xu Mingxing accused Binance of "irresponsible marketing activities" that triggered the collapse, particularly the promotion of high-yield products targeting the USDe stablecoin. He stated that as the largest global platform, Binance has "immense influence and corresponding industry leadership responsibilities." Bitcoin has continued to struggle since the October crash, currently trading about 36% below its historical high.

Macro Shock Triggers Liquidity Exhaustion

Binance detailed the mechanism of the market crash on October 10 in its report. The tariff-related news had already put pressure on the global market, while the sustained rise of Bitcoin and Ethereum over the previous months had led traders to become highly leveraged and concentrated in their positions. The open contracts for Bitcoin futures and options exceeded $100 billion, creating ripe conditions for forced deleveraging.

The sell-off quickly became self-reinforcing. As prices fell, market makers initiated automatic risk controls and reduced exposure, withdrawing liquidity from the order book. Binance cited Kaiko data showing that during peak volatility, the buy-side depth at several major exchanges nearly disappeared. In the absence of orders, even small-scale liquidations could significantly depress prices.

This turmoil was not limited to the cryptocurrency market. The U.S. stock market evaporated about $1.5 trillion that day, with the S&P 500 and Nasdaq indices recording their largest single-day declines in six months. Binance stated that approximately $150 billion in systemic liquidations occurred in the global market that day.

Blockchain congestion exacerbated the pressure. Ethereum gas fees (on-chain transaction fees) soared above 100 gwei at one point, slowing down transfer speeds and limiting cross-exchange arbitrage. With funds unable to move quickly, price discrepancies widened, and liquidity further fragmented.

Platform Issues and Compensation Plans

Binance acknowledged that two platform-specific incidents occurred during the crash but stated that neither led to broader market volatility.

The first incident involved a slowdown in the internal asset transfer system between 21:18 and 21:51 UTC, affecting transfers between spot, wealth management, and futures accounts. The core trading system remained operational, but some users temporarily saw zero balance displays due to backend timeouts. Binance stated that the issue stemmed from database performance degradation under surging traffic, which has now been resolved, and affected users have been compensated.

The second incident involved a temporary index deviation for USDe, WBETH, and BNSOL between 21:36 and 22:15 UTC, occurring after most liquidations had already been completed. Binance indicated that thin liquidity and delays in cross-exchange rebalancing caused localized price fluctuations to disproportionately impact index calculations. The exchange has implemented methodological adjustments, and affected users have been compensated.

Binance emphasized that about 75% of the liquidations occurred before the index deviation that day, indicating that the initial macro shock was the primary driving factor. The exchange stated that it has compensated users over $328 million in total and initiated additional support programs to stabilize participants affected by the crash. The total compensation provided to customers and businesses by Binance after the crash is approximately $600 million.

Zhao Changpeng Denies Platform Responsibility

Zhao Changpeng stated in a live Q&A on Binance's social platform on Friday that the ongoing accusations that Binance bears primary responsibility for the October cryptocurrency market crash are "far-fetched." He denied that Binance was a key driver of the record liquidation wave and stated that users who suffered losses due to platform system issues during the October market crash have been compensated.

Zhao Changpeng stepped down as CEO in November 2023, acknowledging as part of a U.S. law enforcement settlement that he failed to maintain an effective anti-money laundering program. The parent company Binance Holdings agreed to hire an independent external compliance overseer. Zhao was pardoned by Trump in October of last year.

Zhao stated that there are still a group of people claiming that the crash was caused by Binance and hoping the platform would "compensate everything." He emphasized that Binance is a regulated company in Abu Dhabi, and authorities can access the company's activities, while the U.S. government continues to monitor the platform. According to Bloomberg's report last September, Binance was close to reaching a potential agreement with the U.S. Department of Justice that would allow it to waive oversight requirements.

Xu Mingxing: "It's Binance's Irresponsibility That Led to This"

Following Zhao Changpeng's remarks on Friday, accusations regarding Binance's role in the market crash continued. Xu Mingxing posted on the X platform, stating, "As the largest global platform, Binance, as an industry leader, has immense influence and corresponding responsibilities."

Xu Mingxing stated in a post on Friday, "There is no complexity, no surprise. October 10 was caused by irresponsible marketing activities from certain companies." He accused Binance of triggering a chain reaction of liquidations with the high-yield product launched for the USDe stablecoin in September. This product allowed users to earn a 12% annualized yield on the USDe stablecoin through Ethena Labs during the promotional period and used the stablecoin as collateral.

Xu Mingxing claimed that the product carried "hedge fund-level risks." He believed that traders did not understand the risks of borrowing against USDe as collateral and increasing their bets, falling into a "leverage cycle." He asserted that "even a small market shock was enough to trigger a collapse," and when "volatility hit, USDe quickly depegged," leading to liquidation events. Xu Mingxing stated:

"The damage to global users and companies (including OKX customers) is severe, and recovery will take time."

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