10.11 Crash Review: Who Will Build a Safety Net for the Crypto Market?

At 5:30 a.m., USDe was smashed down to $0.65.

The screen was awash in red. Numbers cascaded like a waterfall. BTC dropped from $122,000 to $104,000, ETH fell from $4,360 below $3,500. For some small tokens, the K lines turned vertical, even going straight to zero.

In the early hours of October 11, the global crypto market evaporated by $300 billions. Over 1.6 million people were liquidated, with forced liquidation totaling $19.1 billions.

Traditional finance has circuit breakers, margin calls, and investor protection funds. Most of the time, Web3 users can only watch helplessly as their liquidation lines are breached.

A Free Fall Without a Safety Net

On the evening of October 10, Trump announced on Truth Social: an additional 100% tariff on all Chinese goods, with total tariffs on some products exceeding 130%. He also threatened to cancel the APEC meeting with Xi Jinping.

The news broke, U.S. stocks plunged, the dollar index soared 1.8%, and funds rushed into safe-haven assets.

The crypto market bore the brunt. The tariff threat became the spark that ignited the market, and the bubble burst instantly. By early Saturday morning, Asian traders were asleep, U.S. stocks had long closed, and Western market makers were offline.

The market was empty, with no one to catch the falling knife. The sell-off snowballed into an avalanche.

How Leverage Killed the Bulls

In recent months, contract leverage and DeFi loop lending pushed the market to the edge of a cliff.

Binance and Bybit offered 100x leverage. Many went all-in long. DeFi was even crazier: using Ethena's USDe, WBETH, BNSOL as collateral to borrow stablecoins, buy more tokens, re-collateralize, and repeat the cycle infinitely.

Once prices broke support, one round of forced liquidation triggered the next, starting a chain reaction of bulls killing bulls.

Within 24 hours, long positions were liquidated for $16.68 billions, accounting for 87% of total liquidations. The emerging platform Hyperliquid saw liquidations exceeding $10.2 billions, far surpassing Bybit ($4.6 billions) and Binance ($2.3 billions).

The largest single liquidation occurred on Hyperliquid's ETH-USDT contract, valued at $203 million.

Including on-chain leveraged liquidations, the actual deleveraging scale may have reached as high as $30-40 billions.

Why Did USDe Depeg?

At 5:30 a.m., the USDE/USDT trading pair on Binance collapsed. The price dropped as low as $0.65, and the on-chain price fell to $0.97.

Many recalled the death spiral of UST.

The Ethena protocol supports USDe with over-collateralization, holding spot longs and perpetual contract shorts for hedging. During a crash, short positions profit, actually strengthening collateral security. The protocol itself continued to operate normally, with no death spiral.

The breaking point was in the secondary market.

Many users used USDe for loop lending or margin. During panic selling, market makers couldn't maintain the price, buy orders dried up, and exchange interfaces lagged. The price collapsed instantly.

The protocol itself was fine; the real issue was liquidity being squeezed. As sentiment calmed, USDe quickly rebounded above $0.99.

WBETH and BNSOL and other wrapped assets also experienced similar depegging, but soon returned to normal.

The Vertical Plunge of Small Tokens

Small-cap tokens suffered even more. Many tokens' prices were smashed close to zero.

The reason is simple: no one to catch the falling knife.

Since established market makers exited, the depth of small and mid-cap tokens has relied mainly on a few active market makers, with limited funds, prioritizing top tokens, leaving small projects unsupported. When the market crashes, market makers must first protect major assets, pulling liquidity from small tokens. The result: small and mid-cap tokens face massive selling pressure, but no buy orders.

The IoT token IOTX was once driven down to $0.00000. Many altcoins dropped 90%-99% in a short time, with 1-minute K lines showing a vertical plunge.

All this happened from late Friday night to early Saturday morning, during Western traders' off-hours. Market depth was already thin, no one was watching, and abnormal prices went uncorrected.

Ethereum Gas fees soared to several hundred Gwei, and some exchanges (such as Kraken and Backpack) experienced outages or lag. Users couldn't transfer or trade in time, further amplifying losses.

Binance Also Went Down

As the world's largest crypto exchange, Binance also exposed issues during this turmoil.

Due to a flood of orders, Binance experienced lag and even outages. Many users reported that during the most critical minutes, they couldn't log in or place orders, missing the chance to close positions or stop losses.

Many noticed that tokens listed on Binance actually fell harder. When Binance went down or had limited functionality, related tokens saw even more violent swings due to the main trading pool freezing.

The technical bottleneck of a giant exchange has itself become a systemic risk. Extreme market conditions are not accidental, but a necessary lesson in the market's maturation.

Web3 Needs Its Own Safety Net

Faced with these structural flaws, the market needs more mature protection mechanisms. The answer lies in mechanism design.

The crypto market can absolutely design its own insurance system under a decentralized premise. Technically, all of this is feasible.

Smart contracts can automatically execute compensation logic during liquidation, with no need for manual review—code is law. A portion of every transaction goes into an insurance pool; when extreme market conditions cause user losses, the pool automatically pays out, transparently on-chain.

When user losses exceed a certain threshold, the system provides computing power or token subsidies. These subsidies continue to generate returns, offsetting current losses with future gains. During extreme volatility, the protocol can also automatically lower leverage, giving users time to react.

All insurance funds are managed on-chain, with payout conditions enforced by smart contracts. Trust can be written into code, and rules can become protection.

Replacing Regulation with Design

Some worry that insurance mechanisms will undermine the free nature of crypto. But true freedom needs a safety net.

Mountaineers use safety ropes to climb higher; skydivers wear parachutes to enjoy free fall.

Insurance mechanisms backstop users' risks after they make their choices.

Web3 insurance can be code-level, transparent, and automatically executed, without the complex review processes and trust endorsements of traditional finance. This is decentralized insurance.

On the night of October 11, many wondered: if there had been insurance, would it have been this bad?

The answer is probably yes.

Who Will Build This Safety Net?

Such mechanisms exist to anchor trust and set boundaries for risk.

In the Web3 narrative, we've talked many times about "paradigm shifts", "decentralization of power", and "value return". But when $19.1 billions evaporate overnight, when 1.6 million people are liquidated at once, these grand narratives seem hollow.

What users need is real protection.

The technology is already mature. Smart contracts can enable automatic claims, on-chain pools can operate transparently, and computing power subsidies can generate ongoing returns. The only thing left is willingness: who is willing to write user protection into the protocol's foundation?

The sign of Web3's maturity is having a real safety net to catch users during extreme market conditions.

After October 11, the industry should remember more than just the numbers.

When the next waterfall comes, who will truly catch the users?