OKX Founder Blames Binance for Devastating October 10 Crypto Crash, Exposing Systemic Flaws

In a stunning public accusation that has sent shockwaves through the digital asset industry, OKX founder Xu Mingxing has directly blamed rival exchange Binance for the severe cryptocurrency market crash on October 10, 2023. Xu’s detailed critique, posted on social media platform X, alleges that specific financial engineering practices by certain companies created a dangerous house of cards, ultimately leading to tens of billions in forced liquidations and long-term damage to market infrastructure. This explosive claim from a major industry figurehead, reported from Singapore on February 20, 2025, forces a critical re-examination of the events that shook investor confidence and highlights persistent vulnerabilities within crypto’s decentralized finance (DeFi) ecosystem.

OKX Founder Details Binance’s Role in Market Collapse

Xu Mingxing’s argument centers on a specific sequence of events and financial products. He asserts that the crash originated not from broader macroeconomic factors, but from an irresponsible marketing campaign. Consequently, this campaign promoted unsustainable yield opportunities. Specifically, Xu points to Binance’s offering of a 12% annual percentage yield (APY) for deposits of USDe, a stablecoin issued by Ethena Labs. More critically, the exchange accepted USDe as collateral for loans at a loan-to-value (LTV) ratio on par with established giants like Tether’s USDT and Circle’s USDC.

Xu challenges this equivalence, characterizing USDe not as a pure stablecoin but as a “tokenized hedge fund product.” This product relies on a complex delta-neutral hedging strategy involving staked Ethereum and short Ethereum futures positions to generate yield. Therefore, its stability is inherently tied to the flawless execution of this strategy and liquid derivatives markets. By treating it as risk-free as USDT or USDC for collateral purposes, Xu claims Binance encouraged a dangerous feedback loop.

• High-Yield Incentive: The 12% APY attracted massive inflows into USDe.
• Collateral Recycling: Users deposited USDe, borrowed more USDT against it, and then converted that USDT back into USDe to redeposit, amplifying their exposure.
• Leverage Buildup: This cycle rapidly multiplied systemic leverage within the lending protocols on and connected to the Binance platform.

When unexpected market volatility struck on October 10, the mechanism supporting USDe’s peg experienced stress. Subsequently, as USDe’s price deviated from its $1 peg, it triggered automatic, cascading liquidations of the over-leveraged positions built upon it. This created a violent selling pressure that spread across multiple asset classes, devastating the broader market.

Anatomy of the October 10 Liquidation Cascade

The October 10 event serves as a textbook case of contagion in digital asset markets. Data from blockchain analytics firms and liquidation tracking dashboards recorded one of the largest single-day liquidation events of the year. The cascade followed a predictable yet devastating path. Initially, a sharp, correlated move in Bitcoin and Ethereum prices increased volatility across perpetual futures markets. This volatility strained the funding rate arbitrage at the core of USDe’s yield generation.

As the peg wavered, decentralized and centralized lending protocols that accepted USDe as collateral began calling in loans. However, borrowers could not post additional collateral or repay loans fast enough because the value of their primary collateral (USDe) was falling. Automated systems then forcibly sold the borrowers’ other assets—including Bitcoin, Ethereum, and other stablecoins—to cover the shortfalls. This massive, coordinated sell-off drove prices down further, triggering a second and third wave of liquidations for positions using different, now-declining assets as collateral.

Market analysts noted that the speed and scale of the liquidations exposed critical flaws in risk management models. Many models failed to account for the correlation risk between a “stablecoin” like USDe and the general market volatility it was designed to hedge against. Furthermore, the interconnectedness of lending platforms meant that a failure in one niche area rapidly infected the entire system.

Expert Analysis on Systemic Risk and Stablecoin Design

Financial risk engineers and crypto-economists have long warned about the hidden risks in algorithmic and synthetic stablecoins. Dr. Laura Shin, a noted cryptocurrency journalist and host of the “Unchained” podcast, has frequently discussed the inherent fragility of systems relying on perpetual futures funding rates for stability. “A stablecoin whose backing is a derivative of a volatile asset introduces a layer of reflexive risk,” she explained in a late-2023 episode. “When the market gets stressed, the very mechanism meant to ensure stability can become the source of its failure.”

The October 10 event validated these concerns. It demonstrated that treating all dollar-pegged tokens as equally safe for collateral purposes is a profound oversight. Regulators from the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) have since pointed to such episodes as evidence for needing activity-based regulation of crypto-asset markets, focusing specifically on leverage and interconnectedness.

Broader Implications for Crypto Market Microstructure

Xu Mingxing’s core accusation—that the crash “fundamentally damaged the crypto market’s microstructure”—warrants serious consideration. Market microstructure refers to the mechanisms, liquidity, and processes that determine how prices are formed. The liquidation cascade likely eroded trust in several key areas. Firstly, it damaged confidence in the reliability of certain stablecoins as safe havens during turmoil. Secondly, it revealed that major trading venues’ risk management frameworks might be inadequate for novel, complex products.

In the aftermath, several lending protocols and decentralized finance (DeFi) platforms revised their collateral policies. They implemented stricter risk parameters for synthetic stablecoins, including lower LTV ratios and higher liquidity requirements. Centralized exchanges also faced pressure to enhance their transparency regarding the listing and collateral treatment of new assets. The event underscored the industry’s ongoing struggle to balance innovation with financial stability, a tension that continues to define its evolution.

Xu also predicted a wave of “false information and organized FUD” targeting OKX following his criticism. This preemptive statement reflects the intensely competitive and often contentious nature of the crypto exchange landscape. Historically, public disputes between major platforms have frequently been accompanied by social media smear campaigns and coordinated selling pressure. His decision to “speak honestly about systemic risks” positions OKX as a proponent of conservative risk management, potentially appealing to institutional investors wary of hidden leverage.

Conclusion

The allegation by OKX founder Xu Mingxing that Binance bears responsibility for the October 10 crypto crash presents a pivotal narrative for understanding modern market risks. It shifts the focus from external shocks to internally engineered vulnerabilities, specifically the promotion of high-yield, complex products as low-risk collateral. The resulting liquidation cascade caused significant financial losses and inflicted lasting damage on market trust and microstructure. As the cryptocurrency industry matures and seeks broader adoption, integrating robust, transparent risk management practices that account for novel asset correlations will be non-negotiable. The October 10 crash serves as a costly lesson in the perils of unchecked leverage and the critical importance of accurately pricing risk, even in innovative financial systems.

FAQs

Q1: What is USDe, and how is it different from USDT or USDC?
USDe, or “USDe,” is a synthetic dollar stablecoin issued by Ethena Labs. Unlike USDT and USDC, which are backed by traditional cash and cash-equivalent reserves, USDe maintains its peg through a delta-neutral hedging strategy involving staked Ethereum and short Ethereum futures positions. This makes its stability dependent on market mechanics and execution, leading some, like Xu Mingxing, to classify it more as a yield-bearing tokenized product than a traditional stablecoin.

Q2: What does “cascading liquidation” mean in a crypto market context?
A cascading liquidation occurs when the forced sale of one leveraged position causes asset prices to fall, triggering the liquidation of other leveraged positions that used those now-declining assets as collateral. This creates a self-reinforcing cycle of selling and price declines, rapidly amplifying losses across the market. The October 10 event was a prime example, where a de-peg in USDe led to liquidations that spread to Bitcoin, Ethereum, and beyond.

Q3: Why would an exchange offering a high yield on a stablecoin be considered risky?
Offering a significantly higher yield than the market average for a stablecoin deposit can incentivize excessive and rapid capital inflows into a novel product. When that same product is also accepted as high-quality collateral, it encourages users to take on extreme leverage by borrowing against it. This concentrates risk. If the product’s yield mechanism or peg fails under stress, the resulting losses are magnified by the built-up leverage, threatening the stability of the entire lending platform and connected markets.

Q4: Has Binance publicly responded to Xu Mingxing’s allegations?
As of the latest reporting, Binance has not issued a formal, detailed public response specifically addressing Xu Mingxing’s October 10 crash allegations. The exchange typically emphasizes its commitment to robust risk management and user security in its general communications. The lack of a direct rebuttal in this instance has fueled further discussion and analysis within the crypto community.

Q5: What long-term changes resulted from the October 10 crash?
The crash prompted a sector-wide reassessment of risk models. Many DeFi protocols and crypto lending services downgraded the collateral status of synthetic stablecoins like USDe, applying lower loan-to-value ratios or higher stability fees. It also accelerated calls from institutional participants and regulators for greater transparency around exchange collateral policies and the inherent risks of new financial instruments, pushing the industry toward more conservative risk management practices.