The recent disaster that occurred on October 10th occurred the largest liquidation event in the history of the cryptocurrency market. According to CoinGlass data, over $19 billion was liquidated, which led to: Open interest decreased by $65 billion. This number dwarfs other memorable liquidation cascades, such as the Covid-19 crash with $1.2 billion or even the FTX crash with $1.6 billion in liquidations.
Following this, a consensus emerged among investigators that the event was at least partially caused by sensitive price oracles on the Binance exchange. The collateral value of the three related crypto tokens, namely USDE, bnSOL and wBETH, was determined based on Binance’s internal order book data and not an external oracle. This exposes users of the ‘Unified Accounts’ feature to the risk of liquidation in the event of market failures.
It is possible that this vulnerability was exploited in a coordinated attack on October 10, but the evidence remains inconclusive. USEin particular, it contributed to cascading liquidations of an approximate value of $346 million compared to thing for $169 million and bnSOL with $77 million. The massive withdrawal of buy-side liquidity on the stablecoin pair should be considered particularly suspicious.
Using only sourced, detailed data from our AI-powered market intelligence partners Rena is goodCointelegraph Research examines the unusual activity in the USDE/USDT trading pair in this article.
Massive liquidity crash
Rena’s anomaly detection engine recorded one of the sharpest and most elaborate market disruptions ever observed in stablecoin trading. This is surprising given that there were no concerns about the robustness of the USDE collateral, unlike previous UST and USDC depegs. USDE mints and redemptions continued to operate normally. Nevertheless, professional market makers withdrew liquidity from this pair on a massive scale. Some of this can be attributed to automated risk scoring systems that initiated defensive quote pullbacks to limit exposure.
Before the crash, average total USDE liquidity was $89 million with a balanced mix of buy and sell orders. Between 21:40 and 21:55 UTC, the pair’s liquidity on Binance dropped by almost 74%, falling to approximately $23 million. At around 9:54 p.m., market depth had almost completely disappeared. Total liquidity dropped to just $2 million and market making activity virtually disappeared. A side effect is an enhance in bid-ask spreads to 22%.
As a result of the crash, the market lost its structural integrity. Trading volume increased 896 times as sales page depth decreased by 99%. The imbalance caused the USDE price to fall to $0.68 on the Binance spot market, while it remained close to the firm level on other exchanges.
During the 10-minute crisis period, trading intensity increased almost 16 times compared to the normal rate of 108 trades per minute. It peaked at almost 3,000 transactions per minute, 92% of which were sell orders. Many orders can be attributed to panic selling, stop-loss triggers, and forced liquidations.
Evidence of anomalous market activity
However, Rena’s anomaly engine detected abnormal activity well before the USDE liquidity crisis occurred. At around 21:00 UTC it reported 28 anomalies, four times more than in the previous hour. Anomalies recorded by this engine include unusual spikes in trading volume, price or intensity, and suspicious patterns, particularly bursts, clusters and sequences of trades. This also involves taking fingerprints, a characteristic of various forms of order fraud.
The order book size profile shows three clear volleys of gigantic orders just before the crisis. These orders were placed when the BTC price had already started to decline on major exchanges, but before USDE entered a period of liquidity crunch.
The event highlights the fragility and leverage still present in the cryptocurrency market, where cascading liquidations can wipe out seemingly secure trades. Like the 99% withdrawals from some altcoins during the crash, the USDE index shows that the multi-token market has little organic demand to support it. In the absence of gigantic market makers like Wintermute, the order books of many crypto assets have shown little resilience.
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