There are moments when crypto’s fiercely optimistic traders are forced to reckon with markets’ unwritten rules. October 10 2025 delivered one of those reality checks. A day when leverage was punished, liquidity vanished, and even seasoned participants found themselves staring at red screens as billions were wiped off the crypto market.
This was not a slow bleed. Weeks of bullish build-up and sky-high open interest evaporated from the crypto market overnight, resetting market positioning to where it stood months prior. In total, over $65 billion in open interest vanished from the system.
“The people who got liquidated weren’t retail investors. They were crypto natives and traders using leverage on decentralized exchanges. As always… This was painful, but it wasn’t a retail flush. It was a leverage washout of our most ardent believers.”
The data support this. New retail flows are increasingly buying spot or large-cap ETFs, largely immune to internal DeFi leverage mechanics. The traders left holding the bag were those running high-leverage perpetuals. In other words? Crypto veterans, not first-timers.
The answer, as recounted in Jonathan Man’s detailed post-mortem, lies in market structure. Perpetual futures (“perps”) are zero-sum: when the losers owe more than they can pay, the entire system is stressed.
In ordinary conditions, margin calls and liquidations are absorbed naturally. But as volatility spiked, liquidity providers pulled back. Thin order books on altcoins led to disproportionate price moves, with auto-deleveraging (ADL) shutting out even the profitable traders in some cases.
Certain platforms, like Hyperliquid, benefited through on-chain liquidity pools, capitalizing on forced sales while traders saw positions disappear at a fraction of their value. By the end of the day, even sophisticated market-neutral strategies were caught off guard as operational risk and slow-moving collateral led to sudden losses across the entire crypto market.
Centralized exchanges bore the brunt with cascading liquidations, particularly in long-tail tokens, while DeFi weathered the storm better because of strict collateral standards and hardcoded price mechanisms.
For example, protocols like Aave and Morpho required high-quality collateral and protected stablecoin prices, limiting the risk of a DeFi-wide death spiral. There were still pain points: USDe dropped to $0.65 on some centralized venues, and anyone using it for margin was swiftly liquidated.
Wide spreads, sometimes $300 or more between exchanges, created rare arbitrage opportunities for nimble professionals, but the broader takeaway is more sobering.
“One of the biggest liquidation events in Bitcoin’s history — And it’s down only 15%. Remarkable sign of strength for BTC. Nothing stops this train.”
Crypto’s inherent volatility and its growing macro sensitivity mean such purges are both inevitable and healthy, restoring balance and reminding every participant that leverage isn’t just risky; it’s ruthless.
