Hotcoin Research｜The “10·11 Night of Panic”: From Boom to Collapse — Causes, Transmission, Impact, and Outlook

I. Introduction

In the early hours of October 11, the crypto market experienced a true “night of panic.” Within just 90 minutes, Bitcoin and other major cryptocurrencies plunged by double digits, altcoins crashed across the board, and total liquidations reached $19.3 billion in 24 hours — the largest single-day wipeout in crypto history.

Beneath the surface of a seemingly prosperous bull market, high-leverage positions, recursive lending loops, and derivative-driven bubbles had already planted the seeds of disaster. A single macro “black swan” event was enough to trigger systemic risk across the board. As prices collapsed, leverage triggered forced liquidations, and liquidity evaporated instantly — revealing not just a chain reaction of panic, but a real-time stress test of crypto’s liquidation infrastructure.

• What exactly triggered the “10·11 Flash Crash”?
• What risks and structural flaws did it expose?
• And what lasting impact will it leave on the market?

This report takes a deep dive into the underlying causes, transmission mechanisms, the USDe de-peg incident, overall market damage, and provides an outlook for Q4 2025.

II. Background and Root Causes of the Crash

1. The Immediate Trigger: A Macro Black Swan

The direct spark came from a macro-level shock — U.S. President Donald Trump unexpectedly announcing a 100% tariff on Chinese goods.

Late on October 10, Trump’s social media post threatening new tariffs abruptly reignited trade tensions between the U.S. and China. The news sent global investors fleeing to safety — into dollars and U.S. Treasuries.

Because the statement came after U.S. market close, traditional markets were already shut, leaving crypto — a 24/7 high-risk asset — as the first target for panic selling.

Investor sentiment deteriorated sharply. Fears of a slowing global economy and an escalating trade war compounded already fragile confidence. Such panic often becomes self-reinforcing — selling triggers more selling.

The timing was particularly destructive: the announcement landed on a Friday night (Saturday morning in Asia), when most institutional traders had already closed their books for the weekend. The combination of thin liquidity and negative headlines set the stage for an overnight flash crash.

2. Leverage Bubble: The Domino Effect Beneath False Prosperity

Trump’s tariff shock was only the fuse — the real explosion came from months of accumulated leverage and hidden risk.

Throughout H2 2025, Bitcoin and Ethereum repeatedly hit new highs, painting a picture of exuberant prosperity. Yet analysis showed that much of this growth was not driven by organic spot demand, but by leveraged derivatives, recursive lending, and liquidity mining.

In the euphoric bull atmosphere, traders massively increased leverage, and hedge funds piled into long positions. As prices climbed, the market-wide leverage ratio soared, though it was masked by rising asset values.

When the bearish catalyst hit, that leverage turned against the market. The initial drop triggered widespread forced liquidations of over-leveraged longs. Each liquidation added sell pressure, pushing prices lower and forcing even more liquidations — a self-amplifying cascade.

The hidden leverage chain collapsed like dominoes, turning a correction into a full-blown avalanche.

3. Structural Flaws: Fragile Liquidity and Market-Maker Withdrawals

The flash crash exposed a key structural weakness in crypto market liquidity — market makers are unable to provide depth under extreme stress, and liquidity for smaller tokens is dangerously thin.

When volatility struck, these weak links snapped.

Today’s crypto liquidity is dominated by active market-making firms (MMs). They allocate most capital to top assets (BTC, ETH), leaving only limited liquidity for mid- and long-tail altcoins. Under normal conditions, this suffices. But in extreme events, market makers’ capital can’t support all pairs simultaneously.

Moreover, the flood of new tokens in 2025 far outpaced the growth of market-making capital, stretching liquidity thin. In other words, tail-end assets were already fragile.

Source: https://x.com/yq_acc/status/1977838432169938955

During the 10·11 crash, when panic struck, market makers prioritized protecting BTC and ETH liquidity, pulling funds away from smaller tokens. As a result, altcoins lost all bid support.

Sell orders flooded in with no buyers, sending prices into near free fall. Many tokens plunged 80–95% within minutes; IOTX almost hit zero, while TUT and DEXE recorded 99% intraday drops, effectively losing all liquidity.

The lesson is clear: the market depth and tight spreads seen in calm periods can vanish instantly in a storm. Ignored tail risks can rip markets apart during crises.

III. Transmission Mechanism of the Flash Crash

As the sell-off accelerated in the early hours of October 11, the market’s microstructure flaws magnified the collapse.

A chain reaction of liquidations, combined with evaporating liquidity, drove the flash crash through several distinct phases.

Source: https://www.coingecko.com/en/coins/bitcoin

Phase 1 (around 5:00 AM)

Triggered by the tariff news, Bitcoin began falling from around $119,000. Trading volume surged but remained orderly; market makers maintained bid-ask spreads. Blue-chip tokens fell gradually, and some leveraged longs were liquidated, but the overall impact was manageable.

Phase 2 (around 5:20 AM)

Roughly 20 minutes later, a liquidation waterfall hit. Altcoins plunged 30–50% within minutes as forced sales cascaded. Trading volume spiked to 10× normal, but liquidity dried up — market makers rapidly pulled orders to protect capital. Sell pressure went unabsorbed, and spreads widened violently.

Phase 3 (around 5:43 AM)

About 23 minutes later came the most dramatic stage — a de-peg meltdown on Binance. Three assets — USDe, WBETH, and BNSOL — collapsed almost simultaneously:

• USDe crashed from $1 to ~$0.6567 (34% drop)
• WBETH fell 88.7%, from ~$3,800 to ~$430
• BNSOL plunged 82.5%, from ~$200 to $34.9

At that point, Binance’s order books were empty — liquidity vanished and price discovery failed. Even stablecoins and wrapped assets were caught in the liquidation cascade.

Final Phase (around 6:30 AM)

With market makers fully withdrawn and major assets dislocated, the market entered a state of chaos. By 9:00 AM, 24-hour liquidations soared past $19.2 billion, wiping out over 1.6 million traders. The largest single liquidation exceeded $200 million.

From the first news drop to complete disorder, the entire collapse took just 90 minutes.

IV. The USDe De-Peg Incident

Among the dramatic events of the flash crash, one subplot stood out — the temporary de-peg of USDe, a new synthetic USD stablecoin. However, this deviation was not a typical systemic failure. Instead, it was caused by localized liquidity exhaustion on Binance, not by a collapse of the USDe protocol itself.

USDe, launched by Ethena, is a synthetic dollar asset designed to maintain a 1:1 USD peg through a delta-neutral hedging strategy — combining spot long and perpetual short positions. Essentially, it functions as an overcollateralized synthetic stablecoin. To mint USDe, users must deposit adequate collateral. The protocol hedges exposure by holding spot assets and shorting perpetual futures to neutralize volatility.

Under normal conditions, USDe trades close to $1 via liquidity pools (Curve, Uniswap) and supports minting/redemption mechanisms to keep its price anchored. Before the crash, USDe had a circulating supply of ~$9 billion and was fully collateralized.

When volatility exploded, Binance’s USDe/USDT pair crashed, with USDe briefly falling to ~$0.6567. Yet at the same time, prices on other venues remained stable:

• Curve’s USDe pools showed less than 1% deviation from parity during the crash.
• On Bybit, the lowest print was around $0.92

Clearly, this was not a protocol-wide de-peg, but a localized anomaly on Binance.

Source: https://x.com/gdog97_/

The causes behind Binance’s USDe collapse can be summarized in three key points:

1. Liquidity Shortage and Infrastructure Constraints

Binance was not a primary market for USDe, hosting only tens of millions in liquidity compared to hundreds of millions on Curve. Under normal conditions, market makers could arbitrage price deviations through minting and redemption, but Binance lacked a direct redemption bridge with Ethena.

Moreover, during extreme volatility, Binance’s deposits and withdrawals experienced temporary congestion.

As a result, when USDe sell orders flooded in, the local order book thinned out, bids vanished, and prices crashed below parity, with no external arbitrage available to restore balance.

2. Risk Control and Oracle Design Issues

Binance operates a unified margin account — all assets share the same collateral pool. When USDe’s price dropped, accounts using it as margin were liquidated en masse, creating forced sales that further depressed the price.

Additionally, Binance’s risk engine relied on its own shallow order book for price feeds, rather than referencing deeper external markets like Curve. This meant the internal mark price for USDe fell rapidly, triggering a chain of auto-deleveraging and forced liquidations, which intensified the downward spiral.

3. Leverage Loops via Yield Products

Binance had also been promoting high-yield USDe savings (12% APY), which encouraged users to engage in recursive borrowing and lending loops — effectively creating up to 10× leveraged exposure. Many traders also used USDe as cross-margin collateral, concentrating systemic risk even further.

In short, the USDe crash on Binance looked like a de-peg but wasn’t one. Throughout the turmoil, Ethena’s protocol remained overcollateralized, with redemption and transparency functioning normally. During the panic, USDe supply shrank from $9B to $6B via redemptions — a sign of orderly contraction, not a bank run.

This incident serves as a wake-up call for both exchanges and stablecoin issuers: the balance between transparency and resilience is critical. Ethena’s transparent on-chain data helped preserve confidence, but exchanges must refine risk models and oracle mechanisms — especially for non-native assets with thin liquidity.

In response, Binance acted swiftly:

• It advanced the WBETH/BNSOL pricing mechanism update (originally due Oct 14) to Oct 11.
• It compensated affected users with nearly $400 million in losses tied to the USDe incident.

These fixes mitigated public backlash but also underscored a core reality — centralized platforms remain vulnerable under stress, while DeFi protocols like Curve and Aave weathered the storm gracefully. Curve’s deep liquidity maintained stable prices, and Aave executed $180 million in liquidations smoothly and autonomously — proving that decentralized systems can be remarkably resilient under pressure.

V. Impact Assessment: Aftershocks, Damage, and the Opportunity for Reform

The violent crash of October 11 left deep marks across the crypto industry. While some effects may take weeks to fully unfold, several clear impacts and lessons have already emerged:

1. Confidence in the Altcoin Season Was Shattered

This event created clear “winners” and “losers.” For investors, funds, and market makers who suffered massive losses, confidence has been badly shaken. Some crypto hedge funds were likely liquidated or severely impaired.

Arthur, founder of DeFiance Capital, commented that although his fund recorded losses, “it didn’t even make the top five worst days in history,” calling the damage “manageable.” Yet he admitted the event had set the entire crypto market back significantly, particularly for altcoins.

Because most altcoins rely on offshore centralized exchanges for price discovery, the crash has deeply damaged sentiment. Professional funds may now cut exposure to small-cap tokens in favor of more reliable blue chips.

As a result, the altcoin sector could stay depressed for some time — sparking the gloomy refrain: “Maybe the alt season will never come.”

2. Trading Platform Response and System Reforms

The incident also dealt a reputational blow to Binance, forcing exchanges to rethink infrastructure and risk systems.

User Compensation:

Binance moved quickly to compensate users affected by the WBETH, BNSOL, and USDe incidents, reportedly distributing nearly $400 million.

Insurance Fund Expansion:

Binance and other major exchanges are expected to enlarge their insurance reserves to better handle future volatility. Competitors such as Hyperliquid have already announced plans to allocate part of their daily revenue into a larger protection fund.

Structural Adjustments:

Binance is now likely reassessing its unified margin system and oracle design, aiming to avoid a repeat of the USDe mispricing cascade.

Circuit Breaker Mechanisms:

There are growing calls to adopt temporary trading halts when prices crash beyond a threshold — a standard tool in traditional finance. Implementing such “cooling-off periods” could prevent panic spirals, though integrating them into a 24/7 crypto market poses new challenges.

3. DeFi’s Resilience Stood Out

Amid the turmoil, DeFi protocols demonstrated remarkable robustness.

Leading lending platforms such as Aave handled roughly $180 million in liquidations smoothly and autonomously — without human intervention or failure. Decentralized exchanges like Uniswap saw record-high volumes yet maintained continuous uptime and liquidity. Curve’s stablecoin pools successfully absorbed the USDe shock, preserving price stability.

This contrast reignited a key debate:
Should the foundational infrastructure of crypto rely more on decentralized, transparent systems rather than centralized intermediaries?

4. Regulatory and Compliance Implications

A crash of this magnitude inevitably draws regulatory attention.

Regulators may accelerate efforts to impose leverage caps and risk-buffer requirements, limiting excessive margin use by retail traders to prevent systemic collapses. If investigations uncover any signs of market manipulation, enforcement agencies — including the U.S. CFTC and SEC — could initiate probes or legal actions. Both agencies have repeatedly warned about crypto market manipulation; this event may reinforce their case for stricter oversight.

For exchanges, the message is clear: transparency and compliance are no longer optional. Failure to strengthen governance could erode investor confidence and jeopardize regulatory standing.

5. Shifts in Investor Psychology and Strategy

The “3·12” crash of 2020, the “5·19” crash of 2021, and now “10·11” — each has become a milestone in crypto’s turbulent history. Every catastrophic selloff reshapes how investors perceive and manage risk.

Post-crash, both retail and institutional players are expected to reduce leverage usage and favor blue-chip assets such as Bitcoin and Ethereum. Funds will likely rebalance away from highly speculative tokens. Traders heavily concentrated on a single exchange may also begin diversifying venue risk.

These behavioral changes, though born of pain, will gradually build a more mature and disciplined market ecosystem.

In short, while the immediate damage of October 11 was immense, it may also catalyze long-term improvement. At first glance, it seemed like a random macro black swan; in reality, the true cause lay in years of accumulated leverage and fragile structure. If the industry can reform its leverage, liquidity, and risk-control frameworks, this crisis could become a turning point toward a healthier future.

VI. Market Outlook: Risks and Opportunities in Q4

After this market-wide purge, what lies ahead for the crypto market in Q4 2025?

The path forward is filled with both risks and opportunities:

1. Short-Term Aftershocks and Bottom Formation

Major selloffs are often followed by aftershocks. In the coming weeks, more “secondary shocks” may surface — hedge fund liquidations, project treasury shortfalls, or contagion among market makers. These developments could continue to test investor sentiment.

However, as long as no larger crises emerge, the market is likely to gradually absorb the damage. After this massive deleveraging, much of the selling pressure has already been released. Concentrated liquidation events often mark the approach of a local bottom.

If no new black swans appear, major assets could stabilize in a consolidation range, with sentiment slowly improving.

2. Macro Variables Remain the Key

Macro conditions will continue to dominate Q4 market trends. All eyes will be on the U.S.–China trade conflict and global risk appetite.

If Trump’s tariff threat escalates into real trade retaliation, global risk assets — including crypto — will remain under pressure. Conversely, if tensions ease or markets adjust to the news, crypto could return to its internal growth trajectory.

At the same time, the Federal Reserve’s policy stance and inflation data will shape sentiment. If inflation stays contained and the Fed signals a pause or potential easing, risk assets could see renewed inflows — providing a tailwind for crypto recovery.

3. Structural Reset and New Opportunities

The crash purged enormous amounts of leverage. According to Bitwise, nearly $20 billion in leverage was wiped out — the largest deleveraging in crypto history.

The good news: no major institution collapsed, and the market didn’t enter systemic failure. With weak hands cleared, the market’s foundation is healthier.

Structural trends such as institutional adoption, stablecoin payments, and on-chain tokenization of traditional assets (RWA) continue to advance. With leverage removed, future rallies will rely more on real spot demand rather than speculative credit, making them more sustainable.

When new capital eventually returns, it will encounter far less resistance from entrenched leveraged longs, potentially allowing a cleaner, lighter recovery.

4. Potential Catalysts for a Rebound

Several potential tailwinds could spark a recovery in late Q4 or early 2026:

• Crypto ETF Approvals: Ongoing applications for diversified digital asset ETFs could see regulatory decisions by year-end. Any approval would be a major bullish catalyst.
• Ethereum Ecosystem Upgrades: Network enhancements, Layer-2 scaling progress, and emerging applications in AI and RWA could reignite developer and investor enthusiasm.
• Capital Rotation: Institutional allocators may gradually reenter crypto as macro uncertainty stabilizes, seeking exposure to Bitcoin and yield-bearing DeFi products.

If these positive triggers align without new negative shocks, major cryptocurrencies may resume an upward trajectory by late Q4 or early 2026.

5. Divergent Recovery Across Sectors

The post-crash rebound will likely be uneven. Bitcoin and Ethereum — as the market’s structural anchors — may strengthen their dominance. Investors will favor assets with proven liquidity, robust infrastructure, and institutional presence.

In contrast, altcoins may remain subdued. The era of broad-based “alt seasons” could be over; only a small number of fundamentally strong projects with real use cases will continue to outperform.

Conclusion

The crash of October 11, 2025, will be remembered as a defining moment in crypto history — a night when a macro black swan collided with a leverage-fueled bubble, exposing both the fragility and resilience of the industry.

On one hand, extreme leverage and thin liquidity made the market vulnerable to collapse. On the other hand, the resilience of DeFi, the self-healing mechanisms of protocols, and the long-term conviction of investors proved that crypto is far from dead.

Going forward, as regulation evolves and the industry reforms its internal structures, the crypto ecosystem will gradually mature. For investors, one timeless rule remains: survival is the prerequisite for opportunity.

Stay vigilant, manage risk, and keep faith in innovation — the path to long-term value in Web3 is rarely smooth, but always forward.

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