Binance fixes worst liquidation date in crypto history due to macro risk, not exchange failure

Binance claimed that the October 10th flash crash was due to a macro shock where high leverage and evaporation of liquidity collided, rather than a failure of its trading system due to speculative chatter on social media.

The exchange said in a report released on Saturday that global markets were already under pressure following trade war headlines when cracks appeared in the crypto market. Bitcoin and Ethereum rallied for months into early October, with traders taking large positions and leaving them exposed to risk.

At the time, open interest in Bitcoin futures and options exceeded $100 billion, creating conditions for forced deleveraging as prices began to fall.

The decline quickly spread. As prices fell, market makers activated automated risk management to reduce exposure and pull liquidity from the order book. Data cited by Binance as sourced by Kaiko showed that bid depth had all but disappeared on several major exchanges at the peak of the move. The number of dormant orders has decreased, and even small liquidations have caused prices to plummet.

The confusion was not limited to cryptocurrencies. On that day, the U.S. stock market lost an estimated $1.5 trillion, with the S&P 500 and Nasdaq posting their biggest single-day declines in six months. Binance announced that approximately $150 billion in organized liquidations have occurred across global markets.

Blockchain congestion added to the burden. Ethereum gas fees have soared to over Gwei 100 at times, slowing down transfers and limiting arbitrage between venues. With capital unable to move quickly, price differentials widened and liquidity became more fragmented.

Incident that happened on Binance

Binance acknowledged that there were two platform-specific incidents during the crash, but said both caused widespread market fluctuations.

First, between 21:18 and 21:51 UTC, our internal asset transfer system slowed down, impacting transfers between spot, earned, and futures accounts. Although the core trading system remained operational, some users witnessed their balances temporarily displaying zero due to backend timeouts.

Binance said the issue was caused by slow database performance during traffic spikes and has now been fixed. Affected users have been compensated.

The second incident involved temporary index fluctuations in USDe, WBETH, and BNSOL between 21:36 and 22:15 UTC, after most liquidations had already occurred. Binance said local price fluctuations are disproportionately impacting index calculations due to thin liquidity and delays in rebalancing between venues.

A methodology change has since been implemented and affected users have been compensated.

Binance said that about 75% of the day's liquidations occurred before the index movement, noting that the initial macro shock was the main factor.

In total, the exchange announced that it has compensated users more than $328 million and launched an additional support program to stabilize participants affected by the crash.