Wintermute CEO: Binance Not to Blame for October 10 Flash Crash, Leverage and Macro Shock Were
Wintermute founder and CEO Evgeny Gaevoy has pushed back against claims that Binance was responsible for the violent crypto market crash on October 10, arguing that the sell-off was a classic example of an overleveraged market reacting to a sudden macro shock in thin liquidity conditions.
Posting on X, Gaevoy called the incident “a flash crash on a mega-leveraged market on an illiquid Friday night driven by macro news,” criticizing attempts to pin the entire event on one exchange as “intellectually dishonest.” In his view, the conditions for a sharp correction had been building for some time, and the external catalyst simply exposed structural fragilities across the market.
His comments came in response to a detailed critique from OKX CEO Star Xu, who argued that Binance’s aggressive promotion of the stablecoin-like asset USDe, along with its use as collateral, had created a dangerous leverage loop that magnified systemic risk.
Dispute over the Role of Binance
Star Xu accused Binance of running “irresponsible marketing campaigns” around USDe, advertising a 12% yield while simultaneously allowing traders to post USDe as collateral. According to Xu, this combination encouraged users to stack leverage on top of what they believed to be a relatively safe yield product, without adequate warnings about the risks.
Gaevoy, however, rejected the narrative that Binance alone triggered the event. He acknowledged that some products and practices likely intensified the sell-off, but argued that the core driver was an “overleveraged market environment” hit by a significant macro development at the worst possible time for liquidity.
“Finding a scapegoat is comfy,” Gaevoy wrote, particularly in a bear market where sentiment is already fragile. But, he continued, blaming a single exchange does little to address the broader issues of excessive leverage, risk concentration, and investor complacency.
Not a “Software Glitch” but a Market Structure Problem
Gaevoy also took issue with commentators describing the October 10 event as a “software glitch” or technical failure. According to him, there was no mysterious bug or malfunction behind the crash; the drop was a market structure event driven by positioning and liquidity.
He stressed that the timing played a critical role. The crash unfolded on a Friday night, traditionally one of the least liquid periods in crypto trading. With fewer active market makers and thinner order books, even modest waves of forced selling can cause outsized price moves. Against that backdrop, a macro shock and a heavily leveraged market were a combustible mix.
Gaevoy urged public figures, especially industry leaders, to “pick words more carefully” when describing such events. Mislabeling structural sell-offs as glitches, he argued, risks obscuring real vulnerabilities and encourages traders to underestimate the risks of leverage and correlated positions.
Macro Catalyst: Tariffs and Risk-Off Sentiment
The October 10 flash crash occurred shortly after the United States announced 100% tariffs on imports from China, a headline that intensified global risk-off sentiment. Though tariffs are traditionally associated with equity and trade markets, the news rippled quickly into digital assets, where speculative positioning was already stretched.
The macro shock triggered a wave of liquidations across leveraged crypto positions. Total crypto market capitalization declined sharply, and according to market data, the broader crypto market value fell roughly 23.7% in the fourth quarter of 2025. Many traders who had been relying on elevated leverage and relatively low volatility were abruptly wiped out as prices cascaded lower.
From Gaevoy’s perspective, this kind of chain reaction is exactly what should be expected when global macro risks intersect with a market built on margin, derivatives, and high-yield strategies. He framed the event as a painful but predictable reminder that crypto does not exist in isolation from broader economic and policy developments.
The USDe Leverage Loop Explained
While Gaevoy focused on macro and leverage, Xu outlined the internal mechanics he believes turned USDe into a systemic risk amplifier.
According to his description, many users followed a simple but powerful loop:
1. Convert stablecoins such as USDT or USDC into USDe to earn a 12% advertised yield.
2. Use USDe as collateral on a major platform to borrow more USDT.
3. Convert the borrowed USDT back into USDe to earn additional yield.
4. Repeat the process multiple times, stacking leverage with each cycle.
This recursive strategy effectively turned a 12% advertised yield into much higher effective returns. Xu claimed that this leverage loop produced artificial annual percentage yields (APYs) of 24%, 36%, and even above 70% as traders kept rehypothecating collateral. Many participants, reassured by the involvement of a leading exchange, treated the setup as low risk.
Xu argued that, behind the scenes, “systemic risk accumulated quickly across the global crypto market.” Because USDe was widely used as collateral, any stress on its peg or liquidity could trigger forced liquidations across multiple platforms, assets, and trading pairs.
Why USDe Wasn’t Just Another Tokenized Fund
Xu also drew a sharp line between USDe and tokenized versions of traditional money market funds issued by large asset managers. In his view, products that hold short-term government or high-grade corporate instruments and simply tokenize the ownership claims are structurally different from a crypto-native asset whose stability mechanisms and backing may be more complex or less transparent.
With USDe, when volatility spiked and confidence eroded, the asset lost its peg quickly. Once that happened, collateral values collapsed, triggering margin calls and liquidations across interconnected positions. Because USDe had become embedded in multiple yield and borrowing strategies, its depegging sent shockwaves throughout the market.
Xu noted that weaknesses in risk management around assets like WETH and BNSOL further intensified the turmoil, with some tokens briefly trading at or near zero as order books emptied and automated liquidation engines fired indiscriminately.
Cascading Liquidations and Microstructure Damage
The combined effect of macro stress, the USDe leverage loop, and fragile liquidity produced tens of billions of dollars in liquidations on October 10. Some participants likened the severity and speed of the wipeout to the deterioration seen during the FTX collapse, even if the underlying causes were different.
Xu argued that after that day, “the crypto market’s microstructure fundamentally changed.” By this, he referred to shifts in how liquidity is provided, how risk is priced, and how willing major players are to run aggressive strategies in the face of tail risk. For some market makers and funds, the event served as a line in the sand, prompting tighter risk limits and reduced exposure to certain collateral types.
Gaevoy agreed on the significance of the event but disagreed with the idea that it could be reduced to the actions of a single company. He maintained that it was the accumulation of leverage, combined with a macro shock and poor timing, that created the perfect storm.
Xu: Discussing Causes, Not Attacking Binance
Despite his strong wording around “irresponsible marketing campaigns,” Xu insisted that his intent was not to launch a personal attack against Binance or its leadership. Instead, he said he aimed to analyze what he believes to be the root cause of the crash: a structural vulnerability created by the interaction of high-yield products, collateral design, and user behavior.
He emphasized that the presence of a major, reputable platform tends to lull users into a false sense of security, especially when yields are framed as stable or relatively low risk. When such products become deeply integrated into leverage and collateral strategies, any shock can have outsized consequences.
Gaevoy: Bear Markets Invite Blame, But Not Solutions
For Gaevoy, the emotional context of a prolonged bear market plays a major role in how such crashes are perceived and discussed. “I get that nobody likes being in a bear market, watching every single asset class besides crypto going up,” he wrote, acknowledging the frustration of traders who have seen other assets rally while digital assets lag.
In that environment, he argued, it is psychologically easier to seek a villain than to confront the reality of excessive risk-taking. But focusing solely on one platform obscures structural challenges: widespread leverage, crowded trades, and insufficient appreciation of macro risk.
Gaevoy’s stance effectively shifts the conversation from individual culpability to system design and participant behavior. In his view, only by recognizing these underlying patterns can the industry develop more resilient market structures.
The Deeper Lessons on Leverage and Liquidity
The October 10 flash crash underscores several recurring themes in crypto markets:
– Leverage Magnifies Everything: High leverage turns routine volatility into existential risk. When too many players are positioned in the same direction, even a modest price move can trigger a chain reaction of forced selling.
– Liquidity Is Not Constant: Market depth can vanish at precisely the moment it is needed most, especially during off-peak hours like Friday nights. Price charts that look orderly in normal times can become vertical when market makers pull back.
– Macro News Matters: Crypto is no longer isolated from global economic developments. Tariff announcements, monetary policy shifts, and geopolitical tensions can all impact risk appetite and valuations.
– Collateral Design Is Critical: Allowing newer or more experimental assets to be heavily used as collateral without robust stress testing can embed hidden fragilities into the system.
For traders and investors, these lessons highlight the importance of understanding not just yields and headline returns, but the underlying mechanics of how those returns are generated.
How Platforms Might Respond Going Forward
In the aftermath of the crash, major exchanges and lending platforms are likely to reassess their collateral frameworks and risk controls. Possible responses include:
– Stricter haircuts or lower borrowing limits for newer or less liquid collateral assets.
– More conservative leverage caps, especially on products tied to algorithmic or experimental stable-like assets.
– Clearer risk disclosures for high-yield strategies and looping opportunities, emphasizing that elevated APYs come with corresponding tail risks.
– Improved circuit breakers and volatility controls designed to prevent cascading liquidations when markets gap lower.
While such measures may reduce some of the most aggressive trading opportunities in the short term, they can strengthen the long-term credibility and stability of the ecosystem.
What Retail Traders Should Take Away
For individual traders, the October 10 event is a reminder that:
– Yields far above traditional markets almost always come with hidden or misunderstood risk.
– Using yield-bearing assets as collateral to borrow more and repeat the cycle can work in calm markets, but becomes dangerous when volatility spikes.
– Relying solely on the reputation of a major platform is not a substitute for understanding product design and counterparty risk.
– Risk management—position sizing, diversification, and limited leverage—is as important as picking the “right” tokens.
Recognizing that even large-cap assets can briefly trade at extreme discounts in a liquidation cascade should shape how much borrowed money traders are willing to deploy.
A Turning Point for Crypto Market Maturity
The clash of narratives between Gaevoy and Xu reflects a broader debate about what crypto needs most: better regulation and product discipline, or better risk awareness and behavior from market participants.
On one side, there is growing pressure on major platforms to treat collateral and leverage with the same rigor seen in traditional finance, especially as institutions and regulators pay closer attention. On the other, there is a call for traders and funds to internalize that crypto’s 24/7, highly leveraged environment can turn even seemingly small news into major events.
The October 10 flash crash may ultimately be remembered less for the specific products involved and more for how it forced the industry to confront these issues. Whether framed as a failure of marketing, a macro shock, or a predictable outcome of excessive leverage, the event has become a new reference point in discussions about market structure.
In that sense, Gaevoy and Xu are arguing two sides of the same coin: one emphasizing the broader system’s fragility under macro pressure, the other focusing on how particular products and incentives can load that system with additional risk. For anyone active in crypto markets, understanding both perspectives is essential to navigating whatever the next crisis looks like.