Binance Liquidation Crisis: What Happened and Who's to Blame?

Binance Liquidation Crisis: What Happened and Who's to Blame?

On October 10, 2025, the cryptocurrency market faced a seismic event: a $19 billion liquidation cascade, the largest in its history, with $7 billion wiped out in a single hour. Binance, the world's leading exchange, was at the heart of the storm, grappling with system failures and accusations of profiteering while traders lost billions. This post dives into what happened, how Binance profited, and why many believe the exchange bears significant blame.

The chaos began with external shocks—most notably, U.S. President Donald Trump's threat of 100% tariffs on Chinese imports, which triggered a broad market selloff. Bitcoin plummeted nearly 10% to $114,000, dragging altcoins and leveraged positions down with it. Over 1.6 million traders were liquidated, primarily those betting on continued market gains. Binance, handling a massive share of global crypto volume, saw its systems buckle under the pressure, with transaction delays, page errors, and order execution failures trapping users unable to exit positions.

Compounding the issue, key collateral assets like USDe (Ethena's synthetic dollar), BNSOL (liquid-staked Solana), and wBETH (wrapped staked Ether) briefly "depegged," trading as low as 65 cents on the dollar due to thin liquidity and pricing glitches. Some assets even appeared as "zero" on Binance's interface, though the exchange later attributed this to display errors rather than actual pricing.

The fallout was staggering: industry-wide, $19–40 billion in leveraged positions vanished (estimates vary due to underreporting), with Binance alone handling $10–20 billion in liquidations. Meanwhile, decentralized platforms like Uniswap and Aave processed record volumes and liquidations with minimal disruption, highlighting the vulnerabilities of centralized exchanges (CEXes) like Binance.

How Binance Profited

While traders suffered catastrophic losses, Binance's revenue likely soared. Here's how:

• Trading Fees: With trading volume spiking into the tens of billions, Binance earned millions from standard fees (0.02–0.1% per trade).

• Liquidation Fees: Binance charges ~1% on liquidated positions. With $10–20 billion in liquidations, this could mean $100–200 million in direct revenue—potentially much higher, as API throttling limited real-time data, obscuring the true scale.

• Market Dynamics: As a centralized platform, Binance can internalize trades and profit from spreads. Market makers, allegedly pulling liquidity strategically, widened spreads during the chaos, boosting profits routed through the exchange.

Some estimates suggest Binance earned over $1 billion in total fees from the event, dwarfing the $40 million raked in by Hyperliquid's decentralized liquidity vault during the same period. For traders, it's a bitter pill: their losses directly padded the exchange's bottom line.

Why Binance Faces Blame

The outrage stems not just from the market crash but from accusations that Binance's systems and practices amplified the damage, turning a dip into a disaster. Here are the key issues fueling the criticism:

1. Flawed Internal Pricing

Binance's Unified Margin system relies on its own spot order books for collateral valuation, not independent oracles. During the crash, thin liquidity caused assets like USDe and wBETH to depeg internally, triggering instant liquidations at fire-sale prices—even when external markets remained stable. This "reflexive loop" (depegs → forced sells → thinner liquidity → more depegs) wiped out ~$1 billion in positions in minutes. Critics, including Uphold Research and Galaxy Digital, call this a design flaw unique to CEXes, as DeFi platforms avoided similar issues.

2. System Overload and Throttling

The surge in volume overwhelmed Binance's infrastructure, causing delays and errors that locked users out of closing positions. API throttling capped liquidation data at one per second, potentially underreporting the true scale by 5x (Coinglass estimates $300–400 billion industry-wide). This left traders defenseless as their portfolios evaporated.

3. Suspicions of Manipulation

Whales opened $1.1 billion in shorts on platforms like Hyperliquid, perfectly timed to the market bottom, netting $192 million. Market makers pulled 99% of altcoin liquidity across CEXes, crashing prices further. Some X users speculate Binance insiders or partners coordinated these moves, citing past "hunt" patterns (e.g., a $30M ALPINE short pump). While unproven, the timing of Trump's tariff tweet and the liquidity pull fuels distrust.

4. Opaque Reporting

Binance's delayed transparency on depegs (dismissed as "visual errors") and liquidation volumes eroded trust. Unlike DeFi's real-time data, Binance provided no geo-tagged or granular insights, leaving users feeling misled. Compensation offers—seen as "scraps" ($4–6,000 vouchers vs. $100,000+ losses)—haven't quelled the anger.

Binance's Response: Damage Control

To address the backlash, Binance rolled out:

• $283 Million Compensation: For users liquidated between 21:36–22:16 UTC on October 10 using affected collaterals (USDe, BNSOL, wBETH). Paid in stablecoins within 24–72 hours.

• $400 Million "Together Initiative": Includes token vouchers ($4–$6,000), a $100 million low-interest loan fund for institutions, and a $45 million BNB Chain airdrop for meme traders.

• System Upgrades: New redemption pricing for indexes, minimum thresholds for USDe, and enhanced regulatory reporting.

Total aid: ~$728 million. Binance's co-founder Yi He stressed that only platform-attributable losses qualify, not market-driven ones. The exchange also saw BNB hit an all-time high of $1,370+ post-crash, buoyed by the compensation narrative.

The Bigger Picture

This isn't Binance's first controversy—similar patterns emerged during the 2022 LUNA crash. The centralized model, with its reliance on internal pricing and high leverage, seems prone to amplifying volatility. Meanwhile, DeFi platforms like Hyperliquid handled the same event with 100% uptime and transparent pricing, raising questions about CEX reliability.

For affected traders, Binance's support portal is open for claims. For the industry, this is a wake-up call: leverage is a double-edged sword, and centralized systems can fail under pressure. As one X post put it, "Binance isn't your friend—it's a business." What do you think: was this a deliberate scam or just crypto's wild nature? Share your thoughts below.

Disclaimer: This post is based on available reports and community analysis as of October 15, 2025. Always verify claims with primary sources.