Markets
Weekend Crash: WTF happened?
Bitcoin went down -$20k in a single ~day. That's around $380B in market cap.
Crypto's total market cap was ~$4.1 trillion, near a record. In a couple of hours, crypto's market cap hit $3.3 trillion, down -$800 BILLION.
There has never been such a loss. Not even the FTX crash created this sudden crash.
What happened?
#1. Trump x China Tariff War.
On October 9th, China announced export controls on its rare earth minerals, which is pretty important.
On October 10th, President Trump retaliated with a Tariff war. He tweeted about a "massive increase" in tariffs on Chinese imports. He also cancelled an upcoming meeting with Chinese President Xi.
The market reacted as expected. Trade wars aren't good for businesses. So the S&P 500 had erased -$1.2 TRILLION of market cap in 40 minutes.
Obviously, this wasn't good for crypto.
But this wasn't the only factor. Nor was it the most important factor imo.
#2. Wrapped assets & liquidation cascades
wBETH, BNSOL, and USDe are examples of wrapped assets.
The first two are Liquid Staking Tokens from Binance. USDe is a stablecoin from Ethena backed by delta-neutral strategies. All of them are token wrappers on top of something else.
Compared to underlying assets, wrapped tokens have thin liquidity. For example, ETH can withstand multi-million in sell pressure, but BETH cannot.
After the new trade war, the sentiment was bad. It was also a weekend, so the liquidity was relatively low.
To this very thin liquidity, millions of wrapped assets were dumped. And they crashed.
- BNSOL plummeted to $34.9 on Binance.
- wBETH crashed to $430 on Binance. This was 88.7% below the ETH value
- USDe fell to $0.6567 on Binance. (It maintained >$0.90 elsewhere, but it's still bad.)
This alone might not have been a big issue.
But crypto is highly levered. Traders were using these illiquid assets as collateral on Binance.
When prices of wrapped assets crashed, it triggered $500M–$1B in forced liquidations.
These forced liquidations dumped BTC/ETH/ALTs into already thin books.
Aka, liquidation cascades were here. By the end of the day, at ¬20B in liquidations, crypto had its biggest liquidation day ever.
(One way to solve this issue is for Binance to hardcode wrapped asset prices. But it has other problems. Anyways, Binance has addressed the issue and promised appropriate compensation for affected margin/futures/loan users.)
#3. Market manipulation
There's some evidence that the depeg of wrapped assets is a coordinated attack.
- The timing of the dumps indicates a coordinated crash.
- The massive crashes happened on Binance only. If it were market-driven, it should've happened across exchanges.
- The crash happened just days before Binance was about to upgrade its risk management system that'd have removed this vulnerability.
It wasn't the only point of vulnerability.
With onchain perps data like people's positions, leverage, their collateral, and cross-margin relationships are public. So whales can now calculate how much they've to spend to how much.
This makes it easier for big whales to coordinate and "manipulate markets".
Some are suspecting insider trading on Tariff news a well. Large whales had taken several multi-million short positions just before Trump announced $100% tariff on China.
But there's no hard evidence.
There are alternative theories, like panic psychology. But we have to admit that market manipulation is one possibility.
What's next?
Day-to-day price action is difficult to predict, but I'm still bullish in the medium term.
Tariff war was one catalyst. But it will soon cool down. This is a Tariff drama is a Trump negotiation tactic. You can read more about it here.
There's one legitimate thing to worry about tho. The last time a massive crash of this scale happened, many big crypto firms went underwater. But it took time for the news to come out and crash the market.
That's an edge case. Aside from that, I can only see bullish fundamentals.
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Projects
Winners & Losers of the Crash
The weekend crash has revealed a lot about our industry.
In this article, I'm looking into those lessons. Let's see who came out on top and who got burned.
Winners
#1. Aave & DeFi
Aave is the OG lending protocol in DeFi.
During periods of extreme volatility, lending protocols can incur bad debt.
But Aave operated flawlessly. It automatically liquidated a record $180M worth of collateral in just one hour, without any human intervention.
It wasn't just Aave. If we exclude the perps & wrapper liquidity situation (explained before), DeFi operated pretty well.
#2. Solana
The crash caused insane demand for onchain transactions. Everyone was rushing to get their transaction in.
Solana was able to process all the transactions smoothly. They were able to process 6-10k transactions per second (tps) while keeping the fee minimal.
In contrast, the Ethereum gas fee made it unusable for small users during peak time. The average transaction fee per minute on Ethereum ranged between $76 and $637. Even Base & Arbitrum had high fees.
This was expected. But this episode demonstrated Solana's superiority in handling high demand.
#3. Good Bouncebackers
In the aftermath of any crash, look for tokens that recover rapidly. Those are probably strong tokens. Ideally, you'd want to shortlist them to solid projects with good upcoming catalysts as well.
Here are some from the top 300 tokens that I noticed.
- Bittensor (TAO) is an AI-focused L1 chain.
- Mantle's $MNT is showing a lot of strength.
- Maple Finance ($SYRUP) is an RWA-lending platform.
- $ZORA is up 61% on the weekly. That is somewhat unusal.
- Privacy coins like $RAIL are up a lot due to narrative momentum.
These aren't investment suggestions, obviously. But tokens to add to radar.
Losers
#1. Perp platforms
Perp mania was at a peak before the crash. Almost all crypto natives seemed to be on a perp or another.
During the crash, ~$20 billion was liquidation in a single day.
They've lost a ton of money from perps. Many accounts went to zero. So many people won't have enough money to play on perps now. Plus, many will have PTSD and won't go back to perps anytime soon.
Top perp dexes also "failed".
- HyperLiquid auto-deleveraged many user short positions. So many users didn't get the money they "should've" gotten.
- Lighter, the second leading onchain perp dex, also went offline for a 4.5-hour period. (They've announced compensation for affected users.)
This doesn't mean the sector is dead. Crypto will always have a vibrant perp dex ecosystem.
But the mania will probably cool down.
#2. Ethena (& Binance)
Ethena is the issuer of USDe, which depegged to $0.6567 on Binance. If the stablecoin fails to keep its peg, then it has failed.
It has affected the credibility of the protocol. It's down ~30% on the weekly chart.
Now, there's a caveat: this actually was more of a Binance problem than an Ethena problem. The 80/20: Binance did NOT implement a proper oracle. You can read more about it here.
But at the end of the day, USDe depegged while none of the other major stablecoins like USDC or USDT depegged. Ethena should've established a proper relationship with Binance to avoid this.
#3. Wrapped assets
The massive liquidity cascades on Binance were caused by low-liquidity wrappers. I've explained it in the article before.
Right now, every single protocol is issuing its own wrappers and stablecoins. And this creates the liquidity issues that created the current crash.
On the stablecoin front, HyperLiquid started the trend with USDH. MegaETH issued USDm. Phantom issued $CASH. MetaMask has mUSD. And so on.
There's a lot of wrapped SOL in the Solana ecosystem as well. Even Pudgy Penguins have a PenguSOl.
This episode showed the dangers of low-liquidity wrapper assets.
🚀 DeFi Catalysts
BNB Chain and Four Meme, a launchpad from CZ, is launching a $45M Reload Airdrop with Ecosystem Partners for memecoin traders.
HyperLiquid has released HIP-3, Builder-Deployed Perpetuals, on mainnet. It'll allow anyone to deploy and operate their own perpetual contracts DEX.
Morpho has bought HyperEVM to the Morpho app. HyperLiquid native teams can now grow Morpho on HyperEVM.
Aster is distributing 320M $ASTER for users and participants of the season 2 of their incentive program. Users have one month to claim.
Umbra did its ICO and was oversubscribed. It attracted ~$155M in commitments, but the cap is $3M. So everyone will only receive ~2% of commitments.
Based launched Based Streams. It's the first Hyperliquid-powered Live Streaming platform.
Kalshi has raised $300 million at $5 billion valuation. They announced their international expansion as well.
🐦⬛ X Hits
- $FUN farming guide.
- Six next ICOs on Solana.
- What does tokenization mean in practice?
- OpenEden strategy for the tokenization opportunity.
😂 Meme
Until next time,
Edgy "was promised Uptober"
Today's email was written by Edgy and Yayya.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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