On October 10 (U.S. time), the crypto market experienced one of the most devastating “bloodbaths” in history. A large number of investors across the network were liquidated, with total liquidations reaching $19 billion, setting a new historical record. Although public opinion generally attributed this crisis to macro risk spillovers (Trump’s sudden tariff policy) and excessive leverage, the underlying driving factors were far more complex.

1. Macro Factors: Panic Rose, but Liquidity Remained Stable

Following Trump’s announcement of a 100% tariff on Chinese goods, the VIX index spiked briefly, but remained well below April’s peak of 52. At the same time, broad USD liquidity conditions stayed stable — 3M SOFR and cross-currency basis spreads showed little stress, indicating ample dollar supply in the global banking system.
Unlike April’s indiscriminate sell-off, asset performance this time was highly differentiated. Macro risk was merely a trigger, not the root cause.

2. Leverage Levels: Not a Retail Leverage Blowout

The data does not support the narrative of excessive retail leverage:

BTC and ETH drawdowns were much smaller than during the 5.19 and 3.12 events — no systemic deleveraging occurred;
Altcoin liquidations clustered around 5:15 a.m., when most tokens had already dropped over 70%, suggesting low actual leverage exposure.

3. The Real Culprit: Mismatched Looping and Hidden Leverage

The true fragility stemmed from looped lending (recursive collateralization) structures.

Arbitrageurs staked BTC/ETH/SOL to borrow USDT, swapped to USDE for yield, then re-collateralized USDE to borrow even more USDT — amplifying exposure. Using liquid staking tokens (e.g., WBETH, BNSOL) added another yield layer without improving liquidity resilience.

This compounded leverage loop magnified both returns and systemic fragility.

When prices fell sharply, liquidation cascades became non-linear chain reactions, draining liquidity and triggering ADL (auto-deleveraging) — even low-leverage positions were wiped out.

4. Exchange & Market Maker Failures

During peak volatility, a major exchange suffered outages due to system overload, preventing users from managing margin positions. Simultaneously, market makers withdrew liquidity, possibly due to triggered risk controls or API malfunctions.

As liquidity evaporated, forced liquidations of WBETH, BNSOL, and USDE collateral caused a second crash wave, with USDE de-pegging to $0.66. This was not a new panic, but the final phase of recursive loan liquidations.

5. Structural Takeaways

Hidden Leverage Misjudgment
Investors underestimated the embedded leverage in looping structures. USDE, backed by delta-neutral strategies, carries higher volatility and risk exposure than fiat-backed stablecoins like USDT or USDC.
Exchange Infrastructure Gaps
Key weaknesses include:
👉 System/API instability during extreme volatility;
👉 Mismatch between staking token collateral ratios and actual liquidity;
👉 Lack of emergency liquidity or circuit breaker mechanisms when market makers retreat.

These flaws amplified systemic stress, resulting in a liquidity death spiral.

6. Outlook: Capitulation as Structural Reset

Although even low-leverage investors were hit hard, this capitulation flushed out legacy bagholders, enabling a potential structural reset in the altcoin market.

The 10·10 crash serves as a stark reminder: in an ecosystem built on layered leverage, risk management and infrastructure resilience matter more than ever.