At 5:30 AM, the USDe price was smashed down to $0.65.

On the screen, everything was red. Numbers cascaded like a waterfall. BTC dropped from $122,000 to $104,000, and ETH fell from $4,360 to below $3,500. The candlestick charts of certain small cryptocurrencies turned into vertical lines, with some even going straight to zero.

In the early hours of October 11, the global crypto market evaporated $300 billion. Over 1.6 million people were liquidated, with a forced liquidation scale of $19.1 billion.

Traditional finance has circuit breakers, margin calls, and investor protection funds. Most of the time, Web3 users can only watch helplessly as the liquidation line is breached.

A Free Fall Without a Safety Net

On the evening of October 10, Trump announced on Truth Social: an additional 100% tariff on all Chinese goods, with some products having a total tax rate exceeding 130%. He also threatened to cancel the APEC meeting with Xi Jinping.

Upon hearing the news, U.S. stocks plummeted, and the dollar index surged by 1.8%, with funds flowing into safe-haven assets.

The crypto market was hit the hardest. The tariff threat became the ignition point, and the market's bubble instantly burned out. By Saturday morning, Asian traders were asleep, U.S. stocks had already closed, and Western market makers had also gone offline.

The market was empty, with no one to take over. The sell-off began to snowball.

How Leverage Killed the Bulls

In the past few months, contract leverage and DeFi circular loans pushed the market to the edge of a cliff.

Binance and Bybit offered 100x leverage. Many people went all in on long positions. In DeFi, it was even crazier: using Ethena's USDe, WBETH, and BNSOL as collateral to borrow stablecoins, then buying coins, then re-collateralizing, creating an infinite loop.

Once the price fell below support, one round of forced liquidations triggered the next, starting a chain reaction of long liquidations.

Within 24 hours, long positions were liquidated for $16.68 billion, accounting for 87% of total liquidations. The emerging platform Hyperliquid saw liquidations exceeding $10.2 billion, far surpassing Bybit ($4.6 billion) and Binance ($2.3 billion).

The largest single liquidation occurred on Hyperliquid's ETH-USDT contract, valued at $203 million.

If on-chain leverage liquidations are included, the actual deleveraging scale could reach $30-40 billion.

Why Did USDe Decouple?

At 5:30 AM, the USDE/USDT trading pair on Binance crashed. The price dropped to a low of $0.65, and the on-chain price also fell to $0.97.

Many people recalled the death spiral of UST.

The Ethena protocol supports USDe with over-collateralization, hedging long spot positions with perpetual contract shorts. During the crash, the short positions profited, which actually enhanced the collateral protection. The protocol itself continued to operate normally, with no death spiral occurring.

The breaking point was in the secondary market.

A large number of users used USDe for circular loans or margin trading. During the panic sell-off, market makers were unable to maintain prices, buy orders dried up, and exchange interfaces lagged. The price collapsed in an instant.

The protocol itself had no issues; the truth was that liquidity was squeezed. As emotions calmed, USDe quickly stabilized above $0.99.

Wrapped assets like WBETH and BNSOL also experienced similar decoupling, followed by a return to normal.

The Vertical Plunge of Small Tokens

Even worse were the small-cap tokens. Many coins' prices were directly smashed down to near zero.

The reason is simple: no one was there to take over.

Since the exit of established market makers, the depth of small and medium tokens has mainly relied on a few active market makers, with limited funds prioritizing top tokens, leaving small projects without support. When the market crashed, market makers had to prioritize preserving top assets, withdrawing liquidity from small tokens. The result was that small and medium tokens faced immense selling pressure, yet there were no buy orders.

The IoT token IOTX's price was once driven down to $0.00000. Many altcoins experienced short-term declines of 90%-99%, with one-minute candlesticks showing vertical drops.

All of this happened from late Friday night to early Saturday morning, during the non-working hours of Western traders. The market depth was already thin, with no one monitoring, and prices went uncorrected.

Ethereum gas fees soared to hundreds of Gwei, and some exchanges (like Kraken and Backpack) experienced outages or lag. Users were unable to transfer and trade in time, further amplifying losses.

Binance Also Crashed

As the world's largest crypto exchange, Binance also exposed issues during this turmoil.

Due to a flood of orders, Binance experienced lag and even outages. Many users reported that during the most critical minutes, they were unable to log into their accounts or place orders, missing the opportunity to close positions and stop losses.

Many found that coins listed on Binance actually dropped even more sharply. When Binance crashed or had limited functionality, related tokens fluctuated more violently due to the freezing of the main trading pool.

The technical bottlenecks of the giant exchange itself have become a systemic risk; extreme market conditions are not coincidental but a necessary lesson in the market's maturation process.

Web3 Needs Its Own Safety Net

In the face of these structural flaws, the market needs a more mature protection mechanism. The answer lies in mechanism design.

The crypto market can indeed design its own insurance system under the premise of decentralization. Technically, all of this is feasible.

Smart contracts can automatically execute compensation logic when liquidations occur, without the need for manual review; code is the rule. A portion of each transaction enters an insurance pool, and when extreme market conditions lead to user losses, the fund pool automatically compensates, with transparency on-chain.

When a user's losses exceed a certain threshold, the system provides computing power or token subsidies. These subsidies continuously generate returns, using future earnings to offset current losses. During extreme volatility, the protocol can also automatically reduce leverage ratios, giving users time to react.

All insurance funds are held on-chain, with compensation conditions executed by smart contracts. Trust can be written into code, and rules can become protection.

Replacing Regulation with Design

Some worry that insurance mechanisms will undermine the free nature of cryptocurrencies. But true freedom requires a safety net.

Climbers use safety ropes to reach greater heights, and skydivers wear parachutes to enjoy free falls.

Insurance mechanisms provide a safety net for users after they make choices regarding their risks.

Web3 insurance can be code-level, transparent, automatically executed, and does not require the complex review processes and trust endorsements of traditional finance. This is decentralized insurance.

On the night of October 11, many wondered: if there were an insurance safety net, would it have been so disastrous?

The answer is likely affirmative.

Who Will Build This Safety Net?

Such mechanisms exist to provide a point of trust and to set boundaries on risk.

In the narrative of Web3, we have often discussed "paradigm shifts," "decentralization of power," and "returning value." But when $19.1 billion evaporated overnight and 1.6 million people were liquidated simultaneously, these grand narratives seemed pale.

What users need is tangible protection.

The technology is already mature. Smart contracts can achieve automatic claims, on-chain fund pools can operate transparently, and computing power subsidies can continuously generate returns. The only thing left is a matter of will: who is willing to write user protection into the underlying protocol?

The hallmark of Web3's maturity will be a genuine safety net that supports users during extreme market conditions.

After October 11, the industry should remember more than just the numbers.

When the next waterfall comes, who can truly support the users?

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