10/10: The Crash & The Aftermath

Initially worried this post was coming too late, now that some more news around the event has unfolded, it seems quite timely for Dablib's first published post.

Relations Sour

On October 10, 2025, media outlets began publishing reports of China's intention to implement further restrictions on rare earth mineral exports. This would have large implications for US AI and Defense industries. The US Defense industry, already seeing a strained supply chain, would feel the brunt of the impact-a potential blow to American national security.

Trump was quick to respond with threats to impose an additional 100% tariff on Chinese goods, in addition to the duties already in place.

Markets Wobble

While the initial market selling may have been sparked by these headlines, the ensuing carnage was more structural.

Market makers and degens alike experienced an unfortunate event. While BTC and ETH held up relatively well in terms of price declines, many long tail assets were completely wiped out and wicked down significantly.

Many market makers, funds, and larger players were in delta-neutral trades: long Bitcoin spot and short alts perpetuals, or long alts spot and short Bitcoin perpetuals. As markets took a turn for the worse, many traders began to see their positions being auto-deleveraged, particularly on Binance and the popular DEX Hyperliquid.

If you don't know what ADL is, as many traders didn't know until that day: auto-deleveraging (ADL) is when an exchange closes profitable positions in order to prevent bad debt from accruing.

In this case, that was often short positions as longs were being liquidated and buyers were not stepping in.

Many leveraged accounts were using long-tail assets with thin books as collateral. When markets began to sell off, a large number of these alts saw 50-80% declines within minutes. Insurance funds were tapped, and exchanges needed to trigger ADL of positions in order to keep the books balanced and prevent bad debt. These were mostly short positions as longs were being liquidated and buyers failed to step in.

The result was ~$20 billion in liquidations over a 24-hour period: the largest in the history of crypto markets.

I found this video from The Block particularly helpful in understanding the day's events:

The Aftermath

The benefit of publishing this 2 months after the event is that we can remove much of the speculation from the picture, which there was plenty of in the immediate aftermath.

Despite the swirling speculation at the time, it is highly unlikely that nefarious actions were taken by Binance, or any other market makers and exchanges.

However, many have concluded that ADL systems used are unfair if not downright toxic and should be replaced with better designs going forward.

I will leave this to smarter minds than my own, and I recommend the following readings:

Autodeleveraging: $653 million lost to a greedy heuristic? Article by Tarun Chitra (@tarunchitra)

Tarun's research sparked quite the debate on X, and in response Nagu (0xNagu) published this piece:

Autodeleveraging, Hyperliquid, and the $653m Debate

Personal Thoughts

I feel fortunate to have had very little leverage during these events. Perhaps it was a lesson hard learned in 2022 that has ensured I remain levelheaded and risk-averse.

I do however think that this is the time to be placing bets. Many high quality protocols are trading at attractive valuations, and sentiment is absolutely in the toilet. By many measures, we have been in a bear market for nearly a year now (sans Bitcoin).

I will be DCAing into high quality tokens that I have been wanting to buy for some time. Walls of worry to climb, changing of the hands, and a new energized holder base will emerge. Now is no time to quit.