Nearly four months following the dramatic flash crash in the cryptocurrency market on October 10, which resulted in the liquidation of leveraged positions, industry players continue to debate the causes behind the event. The discourse intensified over the weekend when Star Xu, founder and CEO of the cryptocurrency exchange OKX, characterized the flash crash not as a complicated occurrence, but as a straightforward result of reckless yield campaigns. He asserted that these initiatives had ensnared traders into leverage loops that they were ill-prepared to manage.
The incident coincided with heightened macroeconomic concerns after President Trump announced new tariffs on China, which unsettled various financial markets, crypto included. With many traders already highly leveraged, the initial downturn triggered catastrophic liquidations estimated at approximately $19.16 billion, predominantly from long positions, ultimately resulting in forced selling that sent shockwaves throughout the marketplace.
Xu pointed specifically to USDe, a yield-bearing token issued by Ethena, arguing that its nature exceeded that of a typical stablecoin and resembled a tokenized hedge fund strategy instead. He explained that USDe was designed to yield returns through sophisticated trading and hedging strategies, allegedly luring traders into believing that the associated risks were minimal.
Xu emphasized, “No complexity. No accident. 10/10 was caused by irresponsible marketing campaigns by certain companies.” He remarked on the substantial shifts in the microstructure of the crypto market post-crash, suggesting that the implications of that day were more severe than the fallout from the infamous collapse of FTX. He claimed extensive discussions have since unfolded regarding the reasons for the event and strategies for avoiding future recurrences, asserting that the root causes were easily identifiable.
He contended that the problems originated when traders were encouraged to see USDe as a cash equivalent. By exchanging stablecoins for USDe to exploit attractive yields and subsequently using USDe as collateral for further loans, a cycle of self-reinforcing leverage emerged, creating an illusion of safety around the yields offered.
“Binance users were prompted to convert USDT and USDC into USDe for enticing yields, lacking adequate warnings about the intrinsic risks,” Xu noted. “From the user’s viewpoint, USDe appeared analogous to trading with traditional stablecoins—despite its considerably heightened risk profile.”
According to Xu, the turbulence that struck the market would not have triggered such severe outcomes without the USDe leverage loop in place. As the price of Bitcoin (BTC) began to decline just seconds before the de-pegging of USDe, he argued that this sequence confirmed his assertion: the initial market shock could have been contained, but the existing structural leverage escalated the situation into a broader sell-off.
Responses to Xu’s claims were swift, with Dragonfly partner Haseeb Qureshi labeling the narrative as “ridiculous.” He criticized the attempt to pinpoint a singular villain in an event characterized by complexity, asserting that the crash did not follow the typical pattern of a stablecoin catastrophe that causes widespread disruptions simultaneously. He noted that USDe’s price deviation occurred solely on Binance, while the liquidation wave affected numerous exchanges indistinctly.
“In reality, if the USDe ‘depeg’ did not resonate across the market, it cannot fully account for the significant wipeouts seen on every exchange,” Qureshi stated, reinforcing that the market’s volatility was a response to broader macroeconomic factors rather than one single token’s collapse.
Qureshi proposed that macroeconomic headlines sparked anxiety within an already over-leveraged market, causing liquidity to withdraw rapidly and creating a reflexive cycle of forced selling that exacerbated the decline in prices.
Earlier, Binance attributed the crash to a macroeconomic selloff interacting with elevated leverage and a loss of liquidity, categorically denying that the event stemmed from any fundamental failures within its trading system.
