Understanding the 2 billion liquidation: Market risks have never gone away

Original Source: Blockchain Knight

Original Title: Behind the $20 Billion Liquidation: What Should We Know?

On October 10, 2025, the cryptocurrency market experienced an epic deleveraging storm.

When fervent bullish traders were forced to face the iron law of the market, over $20 billion in leveraged positions were liquidated within an hour. Bitcoin plummeted 15% in a single day, altcoin liquidity nearly dried up, and even seasoned players were caught off guard by the bloody market.

This massacre was triggered by multiple macro-level bearish factors: escalating trade tensions sparked panic selling of risk assets.

Bitcoin plunged 13% within an hour, with altcoins suffering even more severe slippage. Tokens like ATOM nearly hit zero on exchanges lacking liquidity. Although some losses were later recovered, the market had already been severely damaged.

The total liquidation amount across centralized and decentralized platforms exceeded $20 billion, setting the largest single-day liquidation record in cryptocurrency history.

This was not a mild, gradual decline—weeks of bullish sentiment and high open interest evaporated overnight. $65 billion in open positions disappeared from the system, and the market structure instantly reverted to levels seen months ago.

On the surface, it appeared to be a "retail investor defeat," but Scott Melker, the "Wolf of Wall Street," along with several analysts, pointed out the truth: "Those liquidated were not retail investors, but crypto-native traders using leverage on decentralized exchanges. This was a leverage purge of the most steadfast holders."

The data confirms this: new capital entering the market was mainly allocated to spot ETFs or mainstream assets, thus avoiding the impact of DeFi leverage mechanisms. The real victims were high-leverage perpetual contract players, primarily crypto veterans rather than newcomers.

According to Bitwise fund manager Jonathan's review, the root cause lies in market structural flaws. Perpetual contracts are a zero-sum game, and when the losing side's ability to pay collapses, systemic risk is triggered.

Soaring volatility led liquidity providers to withdraw, thin order books for altcoins caused price collapses, and automatic deleveraging mechanisms even mistakenly affected profitable positions.

Platforms like Hyperliquid profited in reverse through on-chain liquidity pools, acquiring assets at a discount during forced liquidations. By the close, even market-neutral precision strategies were ambushed due to operational delays and collateral liquidation issues.

Centralized exchanges, especially those with long-tail tokens, became the hardest hit, while DeFi demonstrated resilience thanks to strict collateral standards and hard-coded price mechanisms.

For example, protocols like Aave require high-quality collateral, avoiding death spirals caused by stablecoin depegging. However, pain points remain: on some exchanges, USDe fell to $0.65, causing related margin positions to evaporate instantly.

Price differences of up to $300 between exchanges created opportunities for arbitrageurs, but more importantly, while $20 billion evaporated, spot buying remained stable.

Prices rebounded from extreme lows, and excess leverage was forcibly cleared from the market. As Jonathan said, the key to survival is not just directional judgment, but also operational capability and the art of liquidity management.

Bitwise CEO Hunter Horsley commented: "The largest single-day liquidation in Bitcoin history resulted in only a 15% drop, highlighting its inherent strength. This train is unstoppable."

The increasing correlation between cryptocurrencies and the macro environment means that such deleveraging is not only an inevitable market adjustment mechanism but also a necessary pain to reshape a healthy ecosystem.

When the cruelty of leverage is laid bare, every participant must remember: risk control is always more important than chasing returns.