Late on October 10, 2025, a cascade of events led to a crash of cryptocurrency markets. While the main source of the crash is still in dispute (Was it a deliberate attack? A systemic failure? Too much leverage? Lack of regulation of market makers?), the sheer scale of the crash was remarkable: approximately $19.3 billion in value destroyed (though some has since been regained), and at least 1.6 million leveraged accounts liquidated. By value, it is the largest loss in crypto markets, more than the Terra/Luna debacle or the FTX fraud.
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Every crash teaches some lessons. While it may take a while longer to conduct a full analysis of the events that occurred on October 10 and 11, here are some of the early lessons/reminders:
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Crypto is building a 24/7 market using 9-5 plumbing: many of the agreements used in crypto markets are copies of, or based on, agreements used in the traditional finance markets. That is not a bad thing—after all, the TradFi markets have developed their precedents over the course of more than 100 years (learning lessons from their failures along the way1) and it helps when TradFi players enter the world of crypto—but those that adopt TradFi agreements (or draft, review and negotiate them) too often don’t keep in mind the differences between crypto markets and TradFi markets, particularly how different a market that trades around the clock and on exchanges spread throughout the world is from TradFi trading that has a daily market close and trading stop.2
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At the same time, the lessons from TradFi are worth remembering: TradFi markets have learned many valuable lessons that crypto markets have unfortunately ignored. For instance, the FlashCrash of May 6, 2010 caused TradFi equity markets to adopt the Market-Wide Circuit Breaker (MWCB) system, which acts as a critical integrity safeguard. The CFTC has adopted similar rules. In contrast, each crypto exchange has adopted (or not) its own system, and this lack of uniformity often contributes to the extent of the market rout because various exchanges face isolated issues (e.g., temporary shutdowns, suspensions, de-pegs and/or order book glitches) that may exacerbate the market drawdown by leading to cascading liquidations.
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We do need more regulation: As Twitter user YQ points out, crypto market makers have no regulation forcing them to make a market even if it is potentially disadvantageous for them to do so, which results in them leaving the market when the market needs them most.
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Similarly, crypto exchanges are subject to significantly less regulations/regulatory oversight than their TradFi counterparts and combine functions in ways those counterparts cannot. That makes service providers in the crypto world more nimble and able to innovate quicker. But it exposes the crypto market to risks that should not exist in a mature financial system. Even devout capitalists admit we should have protections in place to safeguard against laissez faire capitalism running aground on the shoals of greed.3
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The 0.1% matters: Most systems work well 99.9% of the time. Good agreements/arrangements cover the remaining 0.1% as well. “Small” items such as how much notice or how notice is delivered before a counterparty can exercise remedies can have huge effects during the 0.1% events. This last crypto crash included a huge amount of leveraged accounts at Binance being liquidated, in significant part because of the pricing source/oracle Binance used in valuing collateral and determining margins (which lead to account liquidations) was based on a single source. If the oracle had been an index based on the pricing on multiple exchanges such as CME’s BRR, the outcome may have been different.4 It is possible to negotiate terms in agreements with service providers, and even if it is much more cumbersome and expensive (in both time and lawyer fees), it may be worth it in the black swan event scenario.5
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0.1% events may carry unanticipated risks: Stop loss orders are great, but may not work in a highly volatile downward market—as the October 10 example shows, there may not be a market to sell into if the market is in free fall and market makers have exited. And it may trigger an exchange’s auto-deleveraging procedures, which in turn may force an exit from profitable short positions. This, in turn, can result in a perfectly hedged portfolio becoming unhedged and possibly result in the liquidation of the rest (or a larger part) of the portfolio.
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1 For instance, the Securities Act of 1933 and the Securities Exchange Act of 1934 were passed after the crash of 1929.
2 Even FX markets, which trade 24 hours a day, are closed on weekends.
3 Insert your own shipwreck metaphor here.
4 The value of the stable coin USDe on Binance depegged to $0.67 while the value of USDe on DEXs such as Curve and Uniswap stayed within 0.3% of $1.
5 Though, much like the “100-year flood event”, these events seem to happen somewhat regularly, so perhaps we need to rename them.
