Written by: Zhang Yaqi, Wall Street Insights

Binance, the world's largest cryptocurrency exchange, attributed its record-breaking $19 billion liquidation on October 10 last year to a combination of macroeconomic risks, high leverage, and liquidity shortages, denying that a core trading system malfunction was 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 global markets were already under pressure due to news of Trump's tariffs, and that over $100 billion in open interest in Bitcoin derivatives, a rapidly shrinking order book, and blockchain congestion triggered a chain of liquidations. The exchange acknowledged issues specific to two platforms but emphasized that approximately 75% of the liquidations occurred before its index deviations and that it had already compensated users over $328 million.

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

However, OKX CEO Xu Mingxing, following Zhao Changpeng's remarks, accused Binance of "irresponsible marketing campaigns" that triggered the crash, particularly the promotion of high-yield products for the USDe stablecoin. He stated that as the largest global platform, Binance possesses "enormous influence and corresponding industry leadership responsibility." Bitcoin has been struggling since its October crash, currently trading at approximately 36% below its all-time high.

Macroeconomic shocks trigger liquidity crunch

Binance detailed the mechanisms behind the market crash on October 10th in its report. Tariff-related news had already put pressure on global markets that day, and the sustained rise in Bitcoin and Ethereum over the previous months had led to highly leveraged and concentrated exposure among traders. With over $100 billion in open interest in Bitcoin futures and options, the conditions were ripe for forced deleveraging.

The sell-off quickly became self-reinforcing. As prices fell, market makers activated automatic risk controls and reduced their exposure, withdrawing liquidity from their order books. Binance, citing Kaiko data, reported that during peak volatility, buy depth on several major exchanges virtually disappeared. With few orders, even small-scale liquidations could significantly depress prices.

This turmoil wasn't limited to the cryptocurrency market. US stocks lost approximately $1.5 trillion that day, with the S&P 500 and Nasdaq recording their biggest single-day drops in six months. Binance stated that approximately $150 billion in systemic liquidations occurred globally that day.

Blockchain congestion exacerbated the pressure. Ethereum gas fees (transaction fees for on-chain activity) surged to over 100 gwei at one point, slowing down transfer speeds and limiting cross-exchange arbitrage. As funds could not move quickly, price gaps widened, and liquidity became even more fragmented.

Platform Issues and Compensation Plan

Binance acknowledged two platform-specific incidents during the crash, but stated that neither incident 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 a zero balance due to a backend timeout. Binance stated that the issue stemmed from a database performance degradation caused by a surge in traffic, and it has since been fixed; affected users have been compensated.

The second incident involved temporary discrepancies in the indices of USDe, WBETH, and BNSOL between 21:36 and 22:15 UTC, occurring after most liquidations had been completed. Binance stated that scarce liquidity and delays in cross-exchange rebalancing caused localized price fluctuations that disproportionately impacted the index calculations. The exchange has implemented methodological adjustments, and affected users have been compensated.

Binance emphasized that approximately 75% of the liquidations occurred before the index deviation, indicating that the initial macroeconomic shock was the primary driving factor. The exchange stated that it compensated users a total of over $328 million and launched additional support programs to stabilize participants affected by the crash. Binance's total compensation to customers and businesses following the crash was approximately $600 million.

Zhao Changpeng denies platform responsibility

During a live Q&A session on Binance's social media platform on Friday, Changpeng Zhao stated that persistent accusations that Binance bore primary responsibility for the cryptocurrency market crash last October were "far-fetched." He denied that Binance was a key driver of the record-breaking wave of liquidations and stated that users who suffered losses in the October market crash due to platform system issues have been compensated.

Changpeng Zhao stepped down as CEO in November 2023 as part of a U.S. law enforcement settlement, admitting he failed to maintain an effective anti-money laundering program. Parent company Binance Holdings agreed to hire an independent external compliance monitor. Zhao received a pardon from President Trump last October.

Changpeng Zhao stated that a group of people still claim the crash was caused by Binance and want the platform to "compensate for everything." He emphasized that Binance is a regulated company in Abu Dhabi, and authorities have access to its activities; the US government is still monitoring the platform. According to a Bloomberg report last September, Binance was close to reaching a potential agreement with the US Department of Justice, which would allow it to waive oversight requirements.

Xu Mingxing: "It's because Binance was irresponsible."

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

Xu Mingxing posted on Friday, stating, "There's no complexity, no surprise. October 10th was caused by the irresponsible marketing campaigns of certain companies." He accused Binance of triggering a chain reaction of liquidations by launching its high-yield USDe stablecoin product in September. This product allowed users to earn a 12% annualized yield on Ethena Labs' USDe stablecoin during a promotional period, using the stablecoin as collateral.

Xu Mingxing stated that the product carries "hedge fund-level risks." He believes that traders, misunderstanding the risks of using USDe as collateral to borrow and increase their bets, are trapped in a "leverage cycle." He claims that "even small market shocks are enough to trigger a collapse," and when "volatility strikes, USDe quickly de-pegs," leading to liquidation. Xu Mingxing stated:

"The damage to users and the company worldwide, including OKX customers, is severe, and recovery will take time."

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