The Great Crypto Crash Debate: What Really Happened on October 10?

A Market Meltdown Still Shrouded in Mystery

Nearly four months have passed since cryptocurrency markets experienced one of their most dramatic collapses in history, yet industry leaders still can’t agree on what actually caused the carnage. On October 10, the crypto world witnessed a catastrophic flash crash that eliminated leveraged positions worth billions of dollars, leaving traders, exchanges, and analysts scrambling for explanations. What started as a typical market downturn transformed into a full-blown crisis, wiping out approximately $19.16 billion in liquidations, with long positions bearing the brunt of the damage at around $16 billion. The event was so severe that many industry insiders believe it caused more fundamental damage than even the infamous FTX collapse. Now, months later, the debate over what triggered this devastating cascade has erupted into a very public dispute among some of crypto’s most prominent figures, with OKX founder and CEO Star Xu firing the opening salvo by pointing fingers at what he calls “irresponsible marketing campaigns” that pushed unsuspecting traders into dangerous leverage loops.

The timing of the crash couldn’t have been worse. President Trump had just announced a fresh escalation of tariffs on China, sending shockwaves through traditional financial markets. This macro economic tremor hit the cryptocurrency market at its most vulnerable moment—when leverage was already stacked dangerously high across the industry. What might have been a manageable dip under normal circumstances instead triggered a domino effect of forced liquidations that spread like wildfire across trading platforms worldwide. The initial drop set off a cascade of automatic sell orders as traders’ positions fell below maintenance requirements, forcing exchanges to close positions and sell assets, which pushed prices even lower, triggering yet more liquidations in a vicious downward spiral that seemed unstoppable.

The USDe Controversy: Stablecoin or Hidden Time Bomb?

At the heart of Star Xu’s argument lies a controversial yield-bearing token called $USDe, issued by a platform called Ethena. According to Star, this wasn’t just another stablecoin—it was something fundamentally different and far more dangerous than it appeared on the surface. He describes $USDe as functioning more like a tokenized hedge fund strategy than a traditional stablecoin, designed to generate returns through complex trading and hedging strategies before distributing those yields back to token holders. The problem, as Star sees it, wasn’t necessarily the token itself but how it was marketed and used. Traders were allegedly encouraged to treat $USDe as if it were simple cash, swapping their regular stablecoins like USDT and USDC into $USDe to capture attractive yields without fully understanding the underlying risk profile they were taking on.

The real danger emerged in what Star describes as a “leverage loop”—a self-feeding machine that created the illusion of safe, high returns. Here’s how it supposedly worked: users would convert their stablecoins into $USDe to earn those attractive yields, then use their $USDe holdings as collateral to borrow more traditional stablecoins. They would then convert those borrowed stablecoins back into $USDe, and repeat the entire process over and over again. Each cycle amplified their exposure and their potential returns, but it also dramatically increased their vulnerability to any market shock. From the user’s perspective, trading with $USDe felt no different from trading with any other stablecoin—the interface looked the same, the process felt familiar, and the yields were attractive. But beneath that comfortable surface, the actual risk profile was materially different and significantly higher. When volatility finally struck the market, Star argues, this intricate structure didn’t need a major trigger to begin unraveling—it was a house of cards waiting for the slightest breeze.

The Counter-Narrative: A Simpler Explanation?

Not everyone in the crypto community is buying Star Xu’s explanation. Haseeb Qureshi, a partner at prominent crypto venture capital firm Dragonfly, didn’t mince words in his response, calling Star’s narrative “candidly ridiculous.” Qureshi argues that Star is trying to force a clean, simple story with a clear villain onto a complex event that doesn’t fit such a tidy narrative. His main technical objection centers on how the alleged $USDe depeg actually played out across different trading venues. If Star’s theory were correct—if a single token failure truly drove the entire market collapse—then the stress should have appeared broadly and simultaneously across all exchanges. But that’s not what the data shows. According to Qureshi, the $USDe price divergence appeared only on Binance, not on other major trading platforms. Yet the liquidation spiral was happening everywhere, across every major exchange simultaneously. This geographical inconsistency in the data, Qureshi argues, fundamentally undermines Star’s theory. If the $USDe “depeg” didn’t propagate across the entire market, how could it possibly explain why every single major exchange experienced massive wipeouts at the same time?

Qureshi offers an alternative explanation that’s both simpler and, in his view, more consistent with the observable evidence. He believes the crash was primarily driven by macro headline risk hitting an already over-leveraged market at the worst possible moment. The Trump tariff announcement spooked traders who were already heavily leveraged, causing them to reduce positions. As they began selling, liquidity—the ability to buy or sell without dramatically moving the price—evaporated rapidly. Market makers and liquidity providers, seeing the volatility spike, pulled back their orders to protect themselves, which meant there were fewer buyers available to absorb the selling pressure. Once this cycle began, it became self-reinforcing and reflexive. Forced selling from liquidations drove prices lower, which triggered margin calls on other positions, forcing even more selling, which pushed prices lower still, and on and on in a deadly spiral. With few natural buyers willing to step into a chaotic, rapidly falling market, the cascade fed on itself until it had burned through billions in leveraged positions. In Qureshi’s telling, this is simply how over-leveraged markets behave when hit with sudden shocks—no complex stablecoin conspiracy required.

The Exchange Perspective: System Stress vs. System Failure

Adding another voice to the debate, Binance—the world’s largest cryptocurrency exchange by volume—offered its own perspective on what happened that fateful day. According to their analysis, the October 10 flash crash resulted from a perfect storm of macro-driven selling pressure colliding with excessive leverage and disappearing liquidity. Importantly, Binance explicitly rejected any claims of a core trading system failure on their platform. In their view, their systems operated as designed under extraordinary stress, executing the liquidations that their risk management protocols required. This is a crucial distinction in the exchange’s mind: there’s a difference between a system that fails to operate correctly and a system that operates correctly under conditions so extreme that the results are catastrophic for users. Binance appears to be arguing that what happened was the latter—their platform did exactly what it was supposed to do when massive numbers of highly leveraged positions became underwater simultaneously, but the sheer scale and speed of the required liquidations created conditions that felt like a system breakdown even though the technical infrastructure was functioning as designed.

This defense, however, doesn’t fully address the questions about whether the marketing and product design decisions made before October 10 created the conditions for disaster. The debate between Star Xu and his critics isn’t really about whether exchange systems technically failed on that day—it’s about whether certain products, marketing approaches, and leverage mechanisms created systemic vulnerabilities that made a catastrophic crash inevitable once any significant shock hit the market. It’s the difference between asking “did the brakes work?” versus asking “should we have been driving that fast in the first place?” Star’s critique is fundamentally about responsible product design and marketing in an industry where many users may not fully understand the risks they’re taking, while defenders of the current system argue that traders are responsible for understanding their own positions and that providing yield opportunities and leverage options is a legitimate business as long as the tools work as advertised.

Lessons Learned and the Path Forward

What’s perhaps most striking about this ongoing debate is that it reveals deeper questions about responsibility, transparency, and risk management in the cryptocurrency industry. Even if Star Xu’s specific theory about $USDe proves incorrect or incomplete, his broader point about “irresponsible marketing campaigns” resonates with a real concern: are crypto platforms adequately communicating risks to users, especially when those users might be retail traders without sophisticated financial backgrounds? The appeal of cryptocurrency has always included its accessibility—the idea that anyone with an internet connection can participate in advanced financial strategies previously available only to institutions and the wealthy. But that democratization of access comes with a responsibility to ensure that users understand what they’re getting into, particularly when leverage is involved. A leverage loop that might make perfect sense to a professional trader with years of experience managing risk might look deceptively simple and safe to a newer participant who sees primarily the yield potential without fully grasping the liquidation risks.

The October 10 crash, regardless of its precise cause, exposed how interconnected and fragile the cryptocurrency market’s infrastructure can be under stress. Whether the trigger was macro news, a specific token’s structural issues, general over-leverage, vanishing liquidity, or some combination of all these factors, the result was the same: billions in value evaporated in hours, countless traders saw their positions wiped out, and confidence in the market’s stability took a serious hit. As the industry continues to mature and potentially moves toward greater regulatory oversight, events like this will likely inform how regulators think about position limits, leverage restrictions, collateral requirements, and disclosure obligations. The debate between Star Xu and critics like Haseeb Qureshi isn’t just an academic exercise or a public relations battle—it’s a crucial conversation about how the industry should evolve to prevent similar catastrophes in the future while preserving the innovation and opportunity that make cryptocurrency appealing in the first place. Until the industry reaches some consensus on what went wrong and how to prevent it from happening again, the specter of October 10 will continue to haunt crypto markets, and traders will remain justifiably nervous about whether the next macro shock could trigger another devastating cascade.