On October 10, 2025, the cryptocurrency market experienced one of the most severe crashes in its history, wiping out roughly $670 billion in market capitalization in less than 24 hours. The collapse triggered $19 billion in liquidations, leaving countless traders devastated. At the heart of this financial catastrophe was a mechanism that many had heard of but few truly understood: automated de-leveraging, or ADL.
ADL, or automated de-leveraging, is a risk management protocol used by crypto exchanges to maintain solvency during periods of extreme market volatility. It acts as a last-resort safety measure when the exchange’s insurance funds are depleted and traditional liquidation processes are no longer sufficient to balance risk. Essentially, ADL targets and liquidates profitable leveraged positions—not because those positions are risky, but because the exchange needs liquidity to cover losses elsewhere.
This mechanism came into sharp focus during the October 10 crash, sometimes referred to as “Black Friday” in crypto circles. Bitcoin plunged by 17%, Ethereum dropped 20%, and XRP lost a staggering 60% of its value. Solana wasn’t spared either, falling by 38%. Many smaller altcoins nearly vanished in value. These rapid declines triggered a cascade of liquidations, including ADL interventions, which further exacerbated the downward spiral.
The timing of the crash wasn’t random. The sell-off began just after U.S. markets closed, at a time when trading activity in Asia and Europe was minimal. This created a liquidity vacuum that magnified the impact of every sell order. Adding to the chaos were technical failures—price oracles malfunctioned, some exchanges went offline, and transaction fees soared. Many traders were unable to execute trades or access accounts, intensifying frustration and speculation.
Political catalysts further fueled the fire. Earlier that day, former U.S. President Donald Trump announced a 100% tariff on all Chinese goods, effective November 1, 2025. The announcement roiled markets across the board. Although Trump reversed his stance just days later and the White House confirmed a planned meeting with President Xi Jinping, by then the damage in the crypto market was already done.
The role of ADL during this crash raised serious concerns among traders. ADL operates by forcibly closing profitable positions when the exchange can’t find counterparties or lacks the funds to pay out gains. This often happens when long positions are liquidated en masse, and no new long positions are being opened to provide liquidity for the winning short trades. If the insurance fund is insufficient to cover the imbalance, the exchange begins targeting the largest, most profitable short positions, closing them to free up capital.
According to industry experts like Doug Colkitt, founder of Ambient Finance, exchanges typically prioritize which positions to close based on factors such as potential profit, leverage ratio, and trade size. In effect, the “biggest whales”—the traders with the largest, most successful positions—get hit first. ADL ensures the exchange survives, but at the direct expense of traders who made the correct market call.
Critics argue that ADL mechanisms lack transparency. Traders don’t know how much funding remains in the insurance pools, nor are they informed when the exchange decides to switch from standard liquidation to ADL procedures. This opacity fuels distrust and speculation, especially when combined with suspicious trading behaviors—such as massive short positions being opened just prior to the crash.
There are even accusations of insider trading. Some observers pointed out that large short positions were taken shortly before Trump’s tariff announcement, suggesting that certain players may have had prior knowledge of the policy change. The possibility that politically connected individuals could profit from such events raises ethical and legal questions about market manipulation and fairness in the crypto space.
In addition to the systemic concerns, many traders felt betrayed by the exchanges themselves. As prices plunged and opportunities to “buy the dip” emerged, major platforms like Binance and others went offline or experienced outages, preventing users from entering new positions or exiting existing ones. This technological failure not only magnified losses but also created a sense that the playing field was anything but level.
Beyond ADL, the crash exposed broader vulnerabilities in the crypto ecosystem. Price oracles, which provide real-time data to decentralized platforms, failed to deliver accurate information, leading to incorrect valuations and triggering unnecessary liquidations. Network congestion caused fees to spike, while liquidity dried up as market makers pulled back. In combination, these factors painted a picture of a system not yet mature enough to handle extreme market stress.
Going forward, the events of October 10 serve as a stark reminder of the risks associated with leveraged trading in crypto markets. While the potential for high returns is undeniable, the dangers—especially during periods of macroeconomic uncertainty and political volatility—are equally significant. Traders must weigh these risks carefully and understand the mechanisms, like ADL, that can directly impact their positions.
To mitigate future crises, calls are growing louder for increased transparency from exchanges. Traders are demanding clear disclosures about insurance fund balances, ADL thresholds, and the precise algorithms used to select positions for liquidation. Without these reforms, trust in centralized exchanges may continue to erode, pushing more users toward decentralized alternatives—although these, too, are not without their flaws.
Moreover, regulatory bodies may need to step in to ensure fair market practices. Whether through investigations into suspicious trading behaviors or through the implementation of oversight frameworks, some level of governance may be necessary to protect retail investors from systemic failures and exploitation.
In conclusion, automated de-leveraging is a powerful tool designed to maintain exchange solvency during times of market disruption, but it comes at a steep cost to traders. Its use during the October 10 crash demonstrated both its necessity and its dangers. For the crypto market to mature and gain broader acceptance, mechanisms like ADL must become more transparent, predictable, and fair. Until then, traders must navigate these waters with caution, fully aware that even a winning bet can be forcibly closed if the exchange deems it necessary to survive.