Who Triggered the October 10 Crypto Market Crash?

In Brief

• Binance’s USDe yield campaign triggered massive overleveraging.
• API failures worsened pricing issues, amplifying the crash.
• Market safeguards and risk management flaws led to widespread losses.

In October 10, the cryptocurrency market experienced severe liquidations, with billions of dollars lost. The root cause of the crash was linked to Binance’s USDe yield campaign, which introduced significant risk into the system. 

Binance’s campaign, offering up to 12% APY on USDe, attracted many traders. The campaign allowed users to leverage USDe as collateral, amplifying market risks significantly. The platform’s users converted stablecoins like USDT and USDC into USDe to earn yields, unknowingly increasing their exposure to volatility. 

This created a cycle where traders repeatedly borrowed and reinvested USDe, leading to a massive overleveraging of assets.

Systemic Risk and Market Failures During the Crisis

As leverage built up, small market fluctuations triggered widespread liquidations. The issue was exacerbated by the failure of Binance’s APIs, which led to pricing dislocations and hindered market makers’ ability to stabilize prices. 

When market volatility hit, the USDe token rapidly depegged, causing cascading liquidations across exchanges. This failure in risk management amplified the market crash, affecting both retail and institutional investors. 

The lack of sufficient safeguards and transparent risk disclosures contributed to the overall collapse. In the aftermath, many tokens briefly traded at near-zero values, leading to significant losses for users. 

The event highlighted the weaknesses in crypto market mechanisms, which do not have the protective measures common in traditional finance.

The October crash marks a critical moment for the cryptocurrency industry. While the causes are debated, many believe that the excessive leverage and lack of market safeguards were major contributors. 

As the market recovers, leaders in the industry must focus on enhancing transparency and responsibility in trading practices. The event underscores the need for greater risk management and more sustainable growth in the sector.