Almost four months have passed since the unprecedented flash crash on October 10th devastated leveraged positions throughout the cryptocurrency market, yet debates continue over what precisely caused this collapse.
This discussion escalated into a public confrontation last Saturday when Star Xu, founder and CEO of OKX, asserted that the crash was neither complex nor accidental. Instead, he blamed reckless yield-generating campaigns that trapped traders in leverage cycles they failed to fully comprehend.
The turmoil began on October 10th when President Trump announced new tariffs against China, unsettling global macroeconomic markets and striking crypto at a vulnerable moment. Given the already high leverage levels, this initial decline snowballed into a massive liquidation event totaling approximately $19.16 billion—around $16 billion of which came from long positions—as forced selling cascaded across multiple platforms.
Star’s main focus was on $USDe, a yield-bearing token issued by Ethena. He characterized $USDe not as an ordinary stablecoin but more akin to a tokenized hedge fund strategy designed to generate returns through active trading and hedging before distributing those yields back to holders.
“There was no complexity or accident involved. The events of October 10 were triggered by irresponsible marketing efforts from certain companies,” Xu explained. “On that day alone, tens of billions were liquidated. As OKX’s CEO, I witnessed firsthand how fundamentally the microstructure of crypto markets changed afterward. Many participants believe this damage exceeded even that caused by FTX’s collapse.”
Xu argued that risk emerged when traders started treating $USDe like cash equivalents rather than understanding its true nature. Users were encouraged to convert stablecoins into $USDe for attractive yields and then use these tokens as collateral to borrow more stablecoins—repeating this cycle multiple times and creating a self-reinforcing leverage loop which masked underlying risks.
“Binance users were incentivized to swap USDT and USDC for $USDe, chasing higher yields without adequate awareness of potential dangers,” he said. “From their perspective, trading with r ticker”>$USDe
</sp an t r&qu ot;e appeared similar to using traditional stablecoins—but in reality carried significantly greater risk.”
When volatility surged , Star contended , it took only minor triggers for this fragile structure to unravel . He claimed such cascading liquidations amplified what could have been just another selloff , leaving lasting scars across exchanges and investors alike .
&ldquo ;BTC started falling about half an hour before$ US De depegged . This supports my earlier point : it was initially just market shock . Without the$ US De leverage loop , prices might have stabilized then . These mass liquidations weren’t unavoidable—they were worsened by structural leverage,&rdquo he stated.
However , some industry voices challenged Star ’ s assertions.
Haseeb Qureshi , partner at Dragonfly Capital , dismissed Star ’ s narrative as oversimplified and misleading — attempting unfairly assign blame onto one party while ignoring broader complexities.
“if one token failure had truly driven everything,the stress would be widespread simultaneously across all venues,&rdquo Qureshi noted.
“$$ US De‘s price diverged only on Binance but remained steady elsewhere.The liquidation spiral occurred everywhere though.So if$ US De</ sp an & gt;'s depeg didn 't spread broadly,it can 't explain why every exchange experienced huge wipeouts.”
With all due respect to Star,this explanation is frankly absurd.
He claims Binance’s Ethena yield campaign led traders there into excessive leveraging with $USDe,which unwound due a minor trigger… https://t.co/IXlqLZI3DN pic.twitter.com/7YX529JAjN
— Haseeb ＞|＜ (@hosseeb) January 31, 2026
Qureshi proposed instead that macroeconomic news simply unsettled an already highly leveraged market causing liquidity shortages leading liquidations—and once forced selling begins it becomes self-perpetuating: lower prices prompt further sales amid scarce buyers willing or able intervene during chaos.
An earlier statement from Binance attributed the flash crash primarily to macro-driven selloffs combined with heavy leveraging alongside evaporating liquidity conditions — denying any fundamental failures within their trading infrastructure according to CoinDesk reports.