The significant crash on Oct. 10 marked the largest liquidation event in cryptocurrency history, with over $19 billion liquidated, as reported by CoinGlass. This led to a $65 billion drop in open interest, overshadowing previous major liquidation events like the COVID-19 crash at $1.2 billion and the FTX collapse at $1.6 billion.
Following the event, investigators concluded that the crash was partly due to unreliable pricing oracles on the Binance exchange. The collateral values for three pegged crypto tokens—USDE, bnSOL, and wBETH—were derived from Binance’s internal order book rather than an independent oracle. This situation exposes users of the “Unified Accounts” feature to liquidation risks during market disruptions.
There is a possibility that this vulnerability was exploited in a coordinated attack on Oct. 10, although the evidence remains inconclusive. USDE notably contributed to the cascading liquidations, with an estimated volume of $346 million, while wBETH and bnSOL accounted for $169 million and $77 million, respectively. The large-scale withdrawal of buy-side liquidity from a stablecoin pair is particularly concerning.
This article analyzes the unusual activity on the USDE/USDT trading pair using detailed data from our partners at the AI-driven market analytics firm Rena Labs.
A Mass Liquidity Meltdown
Rena’s anomaly detection engine identified one of the sharpest and most complicated market dislocations ever seen in stablecoin trading. This is particularly unexpected since there were no prior concerns regarding the stability of USDE’s collateral, unlike past depegs of UST and USDC. Mints and redemptions of USDE continued normally, yet professional market makers withdrew liquidity significantly. Much of this withdrawal can be attributed to automated risk-scoring systems that prompted defensive quote withdrawals to mitigate exposure.
Before the crash, the average total liquidity for USDE stood at $89 million with a balanced distribution of buy and sell orders. Between 21:40 and 21:55 UTC, liquidity for the pair on Binance plummeted by almost 74%, dropping to roughly $23 million. By around 21:54, market depth had nearly vanished, with total liquidity falling to just $2 million and market-making activity disappearing. Consequently, bid-ask spreads surged to 22%.
The structural integrity of the market deteriorated during the collapse. Trading volume spiked to 896 times the norm, while ask-side depth fell by 99%. This imbalance pushed USDE’s price down to $0.68 on Binance, despite it remaining close to peg on other exchanges.
During the 10-minute crisis, trading intensity rose nearly 16 times compared to the average rate of 108 trades per minute, peaking at nearly 3000 trades per minute, with 92% being sell orders. Many of these orders appear to be due to panic selling, stop-loss triggers, and forced liquidations.
Evidence of Anomalous Market Activity
Rena’s anomaly detection engine also identified abnormal activity prior to the USDE liquidity crisis. At approximately 21:00 UTC, it reported 28 anomalies, four times higher than the previous hour. These anomalies consisted of unusual spikes in volume, prices, and trade intensity, alongside suspicious patterns such as bursts, clusters, and sequences of trades. The engine also detected activity patterns characteristic of various forms of order spoofing.
Three distinct groups of large orders were placed just before the crisis, visible in the order book size profile. These orders occurred when BTC was already in decline on major exchanges, yet before USDE faced a liquidity issue.
This event underscores the fragility and leverage that still exists within the crypto market, where cascading liquidations can eliminate trades that seem secure. Similar to the 99% drawdowns observed in some altcoins during the crash, USDE’s depeg indicates that the market for numerous tokens lacks sufficient organic demand. Without substantial market makers like Wintermute, the order books of many crypto assets have shown inadequate resilience.
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