On Friday, Oct. 10, the crypto market yet again showed how quickly it can take a sharp turn, with crypto exchanges reporting around $20 billion in leveraged positions liquidated in just a few hours — the largest single-day liquidation event the industry has seen to date.
In the ensuing chaos across markets, decentralized finance (DeFi) protocols experienced a major stress test, and largely came out unscathed — with most of the largest protocols seeing zero outages, and very few user-reported issues, especially when compared with their centralized counterparts.
On Friday evening, following reports that U.S. President Donald Trump had imposed 100% tariffs on imports from China, Bitcoin dropped more than 10% from above $120,000, briefly dipping under $103,000 on some exchanges before rebounding, while many altcoins plunged even further in short squeezes, and most assets seeing double-digit losses.
Ethereum (ETH) crashed below $4,000, and XRP hit its lowest price since November of last year. Total market cap plunged more than 15% in hours, going from above $4.2 trillion to about $3.5 trillion.
Markets have since recovered much of their losses, with total market cap inching back up to $3.97 trillion by press time, BTC back over $114,000, and ETH around $4,100. But traders and other industry participants — especially those trading with leverage, over 1.6 million of whom were liquidated on Friday — are continuing to analyze and discuss what happened, how the top platforms performed, and what comes next for markets.
Total crypto liquidations on Oct. 10. Source: Coinglass
What Happened with Binance and Ethena’s USDe?
In the market crash and aftermath, a lot of the drama centered around the largest centralized exchange (CEX), Binance, as well USDe, Ethena’s U.S.-dollar tied token, which showed a jaw-dropping drop on the exchange to as low as $0.6567.
USDe price on Binance. Source: Binance
But on other platforms, especially Curve Finance pools, USDe stayed close to its $1.00 price peg, a mismatch that made some believe the drop was caused by Binance’s own technical setup. Critics reported pricing feeds lagging and market makers going offline, saying this could leave the CEX’s order book out of sync with the broader market.
USDe/USDT pair on Curve. Source: DEX Screener
However, in a blog post on Saturday, Oct. 12, Binance distanced itself from those accusations, saying instead that the exchange’s core futures and spot matching engines and API trading “remained operational.”
The exchange also added that the forced liquidation volume processed by the platform accounted for a “relatively low proportion to the total trading volume, indicating that this volatility was mainly driven by overall market conditions.”
Binance also said that it compensated users who were liquidated as a result of the depegging of USDe and two other assets on the exchange — as they held those assets as collateral for their leveraged trades and loans — paying out a total of $283 million to users, though The Defiant was unable to independently verify those figures.
Many remained unconvinced, however, pointing to inconsistencies in the blog post, unclear timelines, vague technical explanations, and missing data on liquidations and compensation.
How Did DeFi Fare in the Chaos?
Meanwhile, DeFi protocols faced their own pressure tests as liquidity thinned and collateral values swung wildly. Aave, the largest lending protocol with over $42 billion in total value locked (TVL) per DefiLlama, experienced “the largest stress test” of its lending infrastructure, Aave founder Stani Kulechov wrote in an X post on the evening of Oct. 10.
“The protocol operated flawlessly, automatically liquidating a record $180M worth of collateral in just one hour, without any human intervention,” Kulechov added.
Hyperliquid, the largest decentralized perpetuals exchange by trading volumes, also weathered the volatility with “100% uptime with zero bad debt,” according to founder and CEO Jeff Yan, who said in an X post on Saturday that the event was the DEX’s first cross-margin auto-deleveraging (ADL) — an automated risk management mechanism for leverage trading — in the more than two years it’s been operating.
After explaining Hyperliquid’s operations in the first 20 minutes of the crash, when billions of dollars in leveraged positions on the DEX were liquidated, Yan argued that “On other venues, the liquidation engine is not transparent and therefore may not be subject to the same strict margin requirements as for normal users.”
However, Hyperliquid rival Lighter, which last week surpassed its competitor in daily volumes, ran into trouble during the crash. The team behind the DEX reported that its database struggled under heavy traffic, and experienced a 4.5-hour outage on Friday night.
After the market mayhem, the team acknowledged in an X thread that shortly after the exchange’s own mainnet debut on Oct. 1, the team realized that its database resources would “likely struggle with the growth that will come from the launch,” and had plans to upgrade them, but that the DEX also “held up during the worst of the market moves and only gave up 4-5 hours later.”
The team also shared user loss numbers and promised compensation, reporting that 2,008 traders lost over $1,000, while 367 lost more than $10,000, and 38 lost over $100,000.
Morpho, another large lending protocol with more than $7 billion in TVL, reported no major issues, with co-founder Merlin Egalite in an X post on Oct. 11 calling the event “one of the largest tests DeFi has seen in recent memory” and stating that the protocol “continues to operate as designed.” However, some users reported having difficulties accessing their orders due to what Egalite described as a “wallet RPC” problem.
In commentary to The Defiant, Sam MacPherson, core contributor behind Spark, a DeFi protocol in the Sky ecosystem with over $9.6 billion in TVL, revealed in commentary to The Defiant that Spark’s protocols, including DeFi’s third-largest lending protocol, SparkLend, operated normally in the market crash.
MacPherson said that deposits in Sky’s USDS stablecoin “remain at $8B total with $3.2B in stablecoins available for instant redemption.”
The Spark core contributor also noted that “exposure of the balance sheet is as vanilla as it gets, with the majority of outstanding loans against BTC, ETH, and LSTs,” adding that “being in the industry so long, these sorts of events are routine over a several-year time frame.”
Questions Remain
People are still debating who or what is really to blame for the crash and the resulting massive wave of liquidations as rumors and reports continue to circulate on X and other social platforms.
Some public figures are pointing fingers at the biggest centralized exchanges, saying they might be downplaying the numbers, which could mean the real scale of liquidations was much larger than what was publicly disclosed and reported on platforms like Coinglass.
Total DeFi TVL. Source: DefiLlama
Meanwhile, across DeFi, liquidity took a big hit, dropping about 11%, or $20 billion, from Friday to Saturday.
Shawn Young, chief analyst of MEXC Research, told The Defiant that the forceful unwinding “removed a substantial layer of speculative exposure, effectively cleansing the system and setting the tone for a more sustainable uptrend movement.”
