Revisiting the October 11th Crash: Revolving Loan Leverage and Exchange Downtime

October 11th was a day that will go down in crypto history. On that day, over 1.6 million people were wiped out in the crypto market, $19.3 billion in positions were liquidated, Bitcoin plummeted 13%, Ethereum plummeted 17%, and the altcoin sector plummeted 85%, with several smaller coins plummeting to zero. It was a doomsday market littered with casualties. Yet, during the recent National Day holiday, Bitcoin had just hit a new high of $126,200, and BNB was heading towards $1,300, demonstrating a thriving crypto market. In short, the combination of tight liquidity, macroeconomic events, and the industry's high leverage ultimately led to a catastrophe, with exchanges playing a key role. The crypto market was particularly hard hit. BTC flash crashed to $101,500, ETH fell to $3,373, and small-cap altcoins plummeted by over 90%. Liquidations across the network exceeded $20 billion, sending the market into extreme panic. Following the incident, two types of cryptocurrencies were frequently discussed. The first is the collateralized W series. On the day of the incident, the liquidity of WBTC, WBETH, and WBSOL on Binance was completely destroyed. WBTC fell to a minimum of US$35,000, WBETH fell to US$430.65, and WBSOL even fell below US$35; the second is stablecoins. USDe's depegging, with its price plummeting from $0.99 to as low as $0.62 on Binance, sparked widespread market discussion of it as the "second generation of LUNA." However, it's worth noting that while it relies on staking the original token, the depth of liquidity is clearly incomparable. When ETH plummeted, WBETH, as collateral, was the first to be devalued. During liquidations, the platform automatically sold WBETH, creating a vicious cycle with no liquidity. WBETH's price plummeted from over $4,000 to $430, effectively wiped out the vast majority of holders. But high profits always come with high risks. The market plummeted, forcing arbitrageurs' revolving loan positions to be liquidated. Spot and USDe were sold off, and oracles lowered collateral valuations, triggering large-scale forced liquidations. Ultimately, $19.3 billion evaporated in the liquidity vacuum. This scene is not unfamiliar in the crypto market. Before USDe, the algorithmic stablecoin UST had already demonstrated the destructiveness of revolving loans in extreme market conditions. The popularity of conspiracy theories is not groundless. 30 minutes before Trump's speech that triggered the sharp drop, a whale shorted 6,189 BTC with 10x leverage, with a total value of approximately US$752.9 million; and shorted 81,203 ETH with 12x leverage, with a total value of approximately US$353.1 million. The total US$1.1 billion short position successfully made a profit of US$190 million within 24 hours. On-chain detectives believe that the true identity of the whale is Garrett Jin, the former Chinese CEO of BitForex. On-chain detective ZachXBT posted a message saying, "Garrett Jin seems to have started working with a Chinese whale. This whale previously had tens of digits of funds on the chain that had been dormant until recently."According to Garrett's latest response, he said that the fund belongs to his own clients and that he has nothing to do with the Trump family or Trump Jr., and clarified that this was not an insider transaction.

The turning point also came quickly. Just this morning, Trump issued another statement to reassure the market. His statement, "Don't worry about China. Everything will be fine. The United States wants to help China, not hurt China," successfully restored market confidence. This statement led the market to collectively bet on the "TACO" trade, an abbreviation for "Trump Always Chickens Out," meaning "Trump always chickens out." It directly points to Trump's superficial strength but underlying weakness. The trading strategy involves betting that when Trump's tariff threats cause the market to fall, investors will eventually back down, leading to a stock market rebound and profiting by buying on the dip. As a result, crypto assets rebounded rapidly, with Bitcoin returning to above $115,000. ETH briefly broke through $4,200 and is now trading at $4,186. Binance Coin (BNB) saw an even more impressive surge, rising over 15% to a new high of $1,351. Judging from official responses from both China and abroad, the tariff crisis is likely another macroeconomic event with much ado about nothing. But behind this incident, who should the retail investors whose positions were liquidated seek justice from, and how can the pain left behind be healed? In the end, it seems that only the bloody lesson remains.