Nearly four months after the cryptocurrency market’s dramatic flash crash on October 10, which led to liquidations exceeding $19.16 billion, a heated debate has emerged over the underlying causes of this event. Star Xu, founder and CEO of OKX, has publicly criticized what he deems irresponsible yield campaigns as the catalyst for the crash, claiming that these campaigns misled traders into engaging with complex leverage structures they failed to understand.
The flash crash coincided with President Trump’s new tariffs on China, which unsettled the broader macro markets and hit cryptocurrencies at a particularly precarious moment. This market vulnerability was compounded by existing leveraged positions, resulting in extensive forced liquidations—approximately $16 billion attributable to long bets as panic selling spread across various trading platforms.
Star Xu’s assertions point specifically to a yield-bearing token, USDe, issued by Ethena, which he believes contributed significantly to the market’s instability. He described USDe not merely as a stablecoin, but more like a tokenized hedge fund strategy that promised yield through sophisticated trading and hedging tactics. According to Xu, users were incentivized to convert traditional stablecoins into USDe to take advantage of attractive yields, which inadvertently bound them in a loop of leverage that obscured the true risks involved.
He stated, “No complexity. No accident. 10/10 was caused by irresponsible marketing campaigns by certain companies.” Xu further emphasized that many participants in the crypto space now believe the repercussions of that day were more damaging than the infamous collapse of FTX. Since the incident, extensive discussions have ensued regarding the underlying issues and preventive measures to avoid future catastrophes.
Highlighting the sequence of events, Xu noted that the decline in Bitcoin prices began approximately 30 minutes before USDe lost its peg to the dollar, suggesting that the initial market shock could have stabilized were it not for the forced selling exacerbated by the leverage loops surrounding USDe. He argued that these cascading liquidations, although serious, were not inevitable, and pointed to the structural leverage mechanisms at play.
However, Xu’s comments faced skepticism from several industry figures. Haseeb Qureshi, a partner at Dragonfly, dismissed Xu’s narrative as overly simplistic, arguing that the crash didn’t resemble a typical stablecoin failure that impacts the entire market synchronously. He noted that USDe’s price only diverged on Binance and questioned the notion that a fault in a single token could explain widespread liquidations across various exchanges.
Qureshi contended that the crash stemmed from fundamental macroeconomic pressures rather than the failings of a specific yield campaign. He explained, “Once that cycle starts, it becomes reflexive. Forced selling drives lower prices, which triggers more forced selling, with few natural buyers willing to step in during chaos.”
In contrast, Binance has attributed the flash crash to a combination of macroeconomic data and existing leverage, asserting that liquidity evaporated rapidly, aligning with earlier reports indicating no core trading-system failure.
The rivalry between Star Xu and Binance’s CEO, CZ, intensified when CZ suggested that Dragonfly’s vested interest in OKX might influence their perspective. He remarked, “Dragonfly is/was one of the largest investors of OKX,” reinforcing the notion that agendas might be affecting the narratives surrounding the flash crash.
Star Xu refuted this characterization, clarifying that Dragonfly has not invested in OKX, and offered to verify these details to rebut any misrepresentations.
As the crypto market continues to grapple with the aftermath of the October crash, some analysts express skepticism towards the notion of a singular antagonist. They assert that excessive leverage and declining demand were primary drivers of the selloff, underscoring the fragility of the crypto market in the face of macroeconomic volatility. The ongoing conversation highlights a critical need for reassessment within the industry as participants seek to navigate the complexities of trading in an evolving financial landscape.
