Crypto’s $19B Crash Redefines CEX Trust

The crypto market suffered its largest-ever liquidation event last Friday, erasing over $19 billion in leveraged positions. It liquidated over 1.6 million traders in a single day.

The collapse sparked debate over transparency between centralized exchanges (CEXs) and decentralized finance (DeFi) systems.

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Onchain Advocate Calls Out “Underreported” CEX Liquidations

Jeff, co-founder of the on-chain exchange Hyperliquid, argued that real transparency—where anyone can check transactions on-chain—explains why DeFi offers fairness and open auditing that CEXs lack.

“Hyperliquid’s fully onchain liquidations cannot be compared with underreported CEX liquidations,” wrote Jeff. “Every order, trade, and liquidation happens onchain. Anyone can verify the system’s balance and fair execution in real time. Some CEXs underreport user liquidations by up to 100 times.”

He said transparency and real-time proof of reserves should be key principles for global markets. Hyperliquid has announced plans to activate its HIP-3 upgrade, letting anyone launch a futures DEX.

It’s official:

Crypto just saw its LARGEST liquidation event in history with 1.6 MILLION traders liquidated.

Over $19 BILLION worth of leveraged crypto positions were liquidated in 24 hours, 9 TIMES the previous record.

Why did this happen? Let us explain.

(a thread) pic.twitter.com/dHbkfNjrVs

— The Kobeissi Letter (@KobeissiLetter) October 11, 2025

The liquidation wave followed Trump’s 100 percent tariffs on Chinese goods. It triggered a fast sell-off and a $20,000 Bitcoin swing — a $380 billion market-cap shock.

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Market Reactions and Reforms

Backpack Exchange founder Armani Ferrante acknowledged that the crash revealed “very real, very serious market flaws.” He explained that liquidity vanished almost instantly. Backpack, built to stay neutral, does not operate its own market maker—the FTX model that failed when markets froze. Therefore, Ferrante suggested adding vault tools and circuit breakers, praising Hyperliquid’s system for relieving solvency.

Meanwhile, Haseeb Qureshi clarified that Ethena’s USDe “did not depeg.” He described a Binance-only flash crash caused by broken oracles and API failures. OKX executive Star, however, stated that Ethena’s openness “should set a benchmark.” However, she warned that USDe “is a tokenized hedge fund, not a 1:1 stablecoin.”

Others accused Binance of temporarily freezing withdrawals during the chaos. Binance co-founder He Yi responded that systems “remained stable” despite short delays and confirmed more than $280 million in compensation, which BeInCrypto later verified.

Analyst Kyle observed that the turmoil shifted attention from “DEX vs CEX” to rivalry among exchanges such as Bybit and Binance. His view aligned with studies showing CEXs become regulated platforms seeking IPOs and payments, while DEXs grow through faster and custody-free trading.

Perpetual DEXs handled over $2.6 trillion in 2025, led by Hyperliquid and Aster. However, regulators warned that unchecked leverage and “illusory decentralization” could make them systemically risky.

Turning Point for Crypto Markets

The $19 billion cascade may mark a turning point for crypto’s structure. It showed that liquidity—once locked inside centralized engines—must become programmable and verifiable. Exchanges rushing to prove reserves on-chain and DeFi protocols adding Oracle safeguards mark a clear shift: trust is moving from platforms to code.

Ultimately, the $19 billion wipeout highlighted the widening transparency gap. Until CEXs use verifiable on-chain liquidation systems and DEXs fix their lack of clarity, trust—not leverage—remains crypto’s weakest asset.