Everyone crowded into the same yield trades. For months, two trades paid people to sell volatility (sell insurance) and look smart on BTC Trade #1: Options carry (short vol) People sold calls to collect premium… and hedged the risk by holding long perpetual futures (a cheap, easy hedge when funding is low). Trade #2: Perp carry (cash-and-carry also sell implicit vega being market neutral) Funds shorted perps and bought spot to farm funding… until the crowding crushed funding (high yield → low yield). So you got a “clean” market: vol collapsed, price stayed orderly, everyone felt safe. From 2025-2026 period, Carry trade yield collapse from 10% to 2% APY And options IV got crushed from 68% down to 34% But that calm is fragile. Because when expiries approach, the exit gets narrow: Call sellers must buy back / roll their options (they need to repurchase “insurance”). At the same time, they unwind hedges by selling perps. And dealers hedge mechanically: when vol spikes, option deltas shift and hedging can become pro-cyclical (more selling into weakness). Now add the real accelerants: Thin liquidity → small flow moves price a lot Price drops → liquidations kick in (even “low leverage” adds up) DeFi borrowers get squeezed: collateral down → they must repay → more selling That’s the loop: Unwind → vol up → mechanical hedging → price down → liquidations/DeFi selling → vol up again. This is what a vol spiral looks like. What I’m watching to confirm it: Funding + basis (does carry flip?) Options OI concentration near strikes (where the crowd is) IV term structure (short-dated vol bid?) Perp OI dropping + liquidation prints Order book depth / spreads (liquidity leaving) If you see funding flip + OI dump into expiry, the unwind isn’t theory anymore. Everyone played to sell vega for too long, being to the same risk make market crash 99% of the time. Now IV jumped back to realistic rate, but question is if we look deep down at market maker model. What is the mid price to them ? if we think thoroughly we can infer a decent model would mean increase spread in case pricing isn't good for you, make it tight when you like it again. When did the spread increase drastically ? We can infer this with toxicity in the market that moved the market where takers overwhelm the orderbook and we get so much crossing that price jump huge bps with little to no volume. Our main marginal taker being forced liquidation. The mid could be in here. Around mean of toxic orderflow. I hope this thread is helpful to understand the crazyness. Stay SAFU, in liqs we trust(TheKingfisher)