Binance Under Fire for $19B Crypto Crash: Wintermute CEO Offers Defense

On October 10, a devastating cryptocurrency market crash obliterated $19 billion in leveraged positions, marking one of the most brutal liquidation events in the industry’s chaotic history. As traders lick their wounds, a fierce debate rages over who—or what—is to blame, with Binance, the world’s largest exchange, taking heavy flak while Wintermute CEO Evgeny Gaevoy steps up to defend them against a barrage of accusations.

• Historic Losses: $19 billion in leveraged positions wiped out in a single day.
• Binance Accused: Claims of software glitches and risky collateral practices with USDe fuel criticism.
• Wintermute’s Stance: Gaevoy pins the crash on macro shocks and market dynamics, not Binance’s actions.

The October 10 Meltdown: A Perfect Storm

The sheer scale of the October 10 crypto crash sent tremors through the market, leaving countless traders with empty wallets and a bitter taste of volatility. In a matter of hours, leveraged positions—bets made with borrowed funds—were forcibly liquidated as prices of major cryptocurrencies like Bitcoin and Ethereum plummeted. For the uninitiated, leverage is like borrowing money to gamble at a high-stakes table: it can multiply your winnings, but when the house wins, you’re left with nothing but debt. This event wasn’t just a bad day; it was a bloodbath, exposing the fragility of a market often hyped as the future of finance.

External factors likely lit the fuse. President Trump’s announcement of a staggering 100% tariff on Chinese imports rattled global markets, and cryptocurrencies, often seen as risk-on assets akin to tech stocks, weren’t spared. When investors panic, they pull out of speculative holdings like Bitcoin, triggering sharp price drops. Add to that an illiquid market—thin trading volumes on a Friday night—and you’ve got a recipe for disaster. But while macro news set the stage, many argue the real carnage unfolded on Binance, where a cascading series of liquidations turned a dip into a nosedive.

Binance in the Crosshairs: Accusations of Recklessness

At the center of the storm stands Binance, accused by industry heavyweights of amplifying—if not outright causing—the meltdown. OKX CEO Star Xu has been unrelenting in his criticism, pointing to Binance’s promotion of USDe, a synthetic stablecoin often dubbed a “tokenized hedge fund” for its complex yield-generation mechanisms tied to derivatives and staking. Xu claims Binance lured users with a 12% APY (annual percentage yield) campaign and allowed USDe to be used as collateral for trading, treating it with the same leniency as battle-tested stablecoins like USDT and USDC, but without proper risk caps.

“Binance launched a temporary user-acquisition campaign offering 12% APY on USDe, while allowing USDe to be used as collateral with the same treatment as USDT and USDC, and without effective limits.”

Xu’s argument is damning. By enabling USDe as collateral, Binance allegedly created leverage loops—where users could borrow against their USDe to stake more USDe, ballooning effective yields to as high as 70%. Sounds like a goldmine until volatility strikes. When the market turned on October 10, USDe depegged spectacularly, dropping to $0.65 on Binance while hovering near its intended $1 peg elsewhere. Xu didn’t hold back on the fallout:

“When volatility hit, USDe depegged quickly. Cascading liquidations followed, and weaknesses in risk management around assets such as WETH and BNSOL further amplified the crash.”

Cathie Wood of ARK Invest piled on, claiming the crash erased a whopping $28 billion from the market and linking it directly to a Binance software glitch. Her accusation, however, drew a sharp jab from Binance co-founder Yi He, who effectively told Wood to stay in her lane:

“Whales who trade on Binance know better what actually happens when the tide goes out.”

The criticism raises serious questions about centralized exchanges pushing shiny new products to boost user numbers while downplaying the risks. A 12% APY in a market as wild as crypto? That’s not innovation—it’s a neon sign flashing “disaster ahead.”

Wintermute’s Defense: Don’t Shoot the Messenger

Not everyone is ready to throw Binance under the bus. Evgeny Gaevoy, CEO of Wintermute, a major algorithmic trading firm, offered a counter-narrative that cuts against the grain. He argues the crash wasn’t a Binance-specific screw-up but a flash crash driven by broader forces beyond any single exchange’s control. His take, as detailed in a recent discussion on the October 10 market crash, is blunt and worth a hard look:

“Kind of wish public figures would pick words more carefully… It was a flash crash on a mega leveraged market on illiquid Friday night driven by macro news.”

Gaevoy’s point isn’t just a defense of Binance—it’s a reality check. Crypto markets are notoriously thin during off-hours, especially on weekends when institutional players clock out. Stack that with traders leveraging their portfolios to the hilt, and all it takes is a whiff of bad news to spark panic selling. Historical precedent backs this up: Bitcoin has tanked before on geopolitical shocks, like during US-China trade war escalations in 2019. Is Binance really the villain, or just the biggest target in a market primed to implode?

Binance’s Rebuttal and Damage Control

Binance, unsurprisingly, rejects the blame game entirely. The exchange insists the crash stemmed from external macro shocks, risk protocols among market makers, and even Ethereum network congestion—a recurring bottleneck where transaction delays and sky-high gas fees can grind DeFi (decentralized finance) operations to a halt during peak chaos. They maintain their core infrastructure held steady, no fatal glitches in sight. To ease the pain, Binance shelled out $328 million in compensation to affected users, up from an initial $283 million disbursed within 24 hours of the crash. It’s a hefty olive branch, but does it absolve them of deeper responsibility?

Ethereum’s role can’t be ignored either. As the backbone of much of crypto’s financial ecosystem—think smart contracts powering lending, staking, and more—its network often chokes under pressure. During the crash, delays in processing liquidations likely poured fuel on the fire, though hard data on gas fees or transaction backlogs from that night remains scarce. It’s a plausible factor, but not a get-out-of-jail-free card for Binance.

The Leverage Trap: Crypto’s Achilles’ Heel

Beyond the finger-pointing, the October 10 crash lays bare a harsh reality: crypto’s addiction to leverage is a ticking time bomb. Leverage amplifies gains in bull runs, but when the market flips, it’s a wrecking ball. Cascading liquidations—where one forced sale triggers another in a downward spiral—aren’t new. They’ve haunted crypto since its early days, most infamously during the 2022 Terra-LUNA debacle, where an algorithmic stablecoin’s collapse erased tens of billions overnight. USDe’s depegging echoes that horror show, though on a smaller scale. Unlike Terra’s UST, which relied on a flawed balancing act with LUNA, USDe’s model hinges on derivatives and hedging strategies—still risky when liquidity dries up.

The systemic risk doesn’t stop at stablecoins. Over-leveraging across the board, often egged on by exchanges offering 100x or higher margins, keeps the market on a razor’s edge. It’s the industry’s favorite adrenaline rush—thrilling until it wipes you out. Without stricter risk controls, either self-imposed or regulatory, these blowups will remain a feature, not a bug.

Stablecoin Woes: USDe as the Latest Warning

USDe’s nosedive during the crash is a glaring red flag for stablecoins, synthetic or otherwise. Marketed as a safe harbor pegged to the US dollar, stablecoins are supposed to be the boring, reliable corner of crypto. But under stress, pegs snap. USDe’s drop to $0.65 on Binance while trading near $1 elsewhere suggests either liquidity mismatches or flaws in its backing mechanism—details remain murky without a deep audit. When stablecoins fail, especially ones used as collateral, the dominoes fall fast, as leveraged positions unravel.

This isn’t uncharted territory. Terra-LUNA’s implosion showed how “stable” can be a cruel misnomer when design or oversight falters. USDe’s promise of high yields through complex financial engineering only heightens the gamble. If crypto wants to be taken seriously as a financial system, stablecoin robustness isn’t optional—it’s existential.

Decentralized Ideals vs. Centralized Realities

Zooming out, this crash is a gut punch to crypto’s founding ethos. Bitcoin was born to cut out middlemen—banks, governments, and, yes, centralized exchanges. Yet here we are, with giants like Binance wielding outsized influence over market stability. When they stumble, whether through policy missteps or sheer scale, the fallout hits millions. Binance’s USDe gamble reeks of prioritizing growth over prudence, a move more suited to a Wall Street hedge fund than a platform claiming to empower users.

As Bitcoin maximalists, we see immense potential in blockchain to disrupt the status quo, but not like this. Effective accelerationism—pushing innovation fast and hard—only works if the foundation holds. Centralized choke points keep failing us, and events like October 10 scream for a pivot to true decentralization. Peer-to-peer systems, not corporate gatekeepers, are the endgame. Are we anywhere close? Not by a long shot, but every crash is a call to double down on that vision.

Regulatory Shadows Looming

The aftermath of this meltdown won’t stay confined to Twitter spats and compensation payouts. Regulators worldwide, already itching to clamp down on crypto’s wild west, will likely seize on this as exhibit A. The SEC in the US, or bodies like the EU’s ESMA, could push for tighter rules on leverage, stablecoin issuance, and exchange risk management. While we champion freedom and privacy at the core of crypto, let’s not kid ourselves: systemic crashes invite oversight, whether we like it or not. The challenge is balancing that with innovation—stifling rules could choke the industry, but ignoring risks isn’t an option either.

Key Takeaways and Burning Questions

• What sparked the October 10 cryptocurrency market crash?
  A toxic mix of macro shocks, like Trump’s tariff bombshell, a hyper-leveraged market with thin liquidity, and USDe’s depegging on Binance triggered cascading liquidations. Pinpointing one cause remains contentious.
• Why is Binance catching so much heat for this disaster?
  OKX’s Star Xu slams Binance for pushing USDe as collateral with high APY and no risk limits, creating dangerous leverage loops. Cathie Wood cites a software glitch, though Binance denies core failures.
• What does USDe’s collapse reveal about stablecoin risks?
  It exposes how even “stable” assets can unravel under pressure, especially when used in leveraged trades, highlighting the urgent need for transparency and robust design in these tokens.
• Is over-leveraging crypto’s fatal flaw?
  Damn near. It fuels explosive growth but guarantees catastrophic crashes. Without curbs—self-imposed or otherwise—expect more $19 billion wipeouts.
• Should exchanges like Binance limit leverage to prevent future crashes?
  Probably, though it’s a tough sell in a market obsessed with high-risk, high-reward plays. Capping leverage could save traders from themselves, but it risks stifling adoption.
• What can traders do to dodge liquidation traps?
  Keep leverage low, diversify beyond volatile assets, and always have stop-losses in place. Most importantly, don’t buy into absurd yield promises—12% APY often means 100% risk.
• Can centralized exchanges balance innovation with user safety?
  That’s the trillion-dollar puzzle. New products drive growth, but without ironclad risk measures, exchanges like Binance will keep being lightning rods for market failures.

Looking Ahead: Learning from the Wreckage

The October 10 crash isn’t just a bad memory—it’s a warning shot. Binance’s $328 million payout might soothe some wounds, but trust is harder to mend. The exchange will face intense scrutiny in the weeks ahead, from both users and watchdogs, and must prove it’s not just paying lip service to risk management. Traders, meanwhile, should heed Gaevoy’s unspoken advice: leverage is a double-edged blade, and macro storms don’t give a damn about your margin calls.

For us, this mess reinforces why we push for decentralization with every fiber of our being. Crypto’s promise isn’t in centralized empires playing fast and loose with user funds—it’s in systems that empower individuals over institutions. We’ll keep cheering the disruptive potential of Bitcoin and beyond, while calling out the nonsense where it festers. Because if this space is truly the future of money, it needs to outgrow these reckless growing pains. Fast.