Opinion: Is this crash an attack on Binance and a certain market maker?

Author | Forgiven

I speculated that the October 11 market crash was a premeditated attack targeting Binance and one of its major market makers. The Achilles’ heel lay in Binance’s Unified Account margin system.

In addition to standard USDT-margined and coin-margined products, Binance also allowed PoS derivatives and yield-bearing stablecoins to be used as unified margin collateral. The three assets most severely impacted during the attack were USDE, wBETH, and BnSOL. As unified account collaterals, their liquidation prices were derived from Binance’s own spot order book prices rather than from assets with hard pegs. In contrast, BUSD—also used as unified margin—remained hard-pegged, and on-chain Aave oracle data for USDE was fixed at 1:1, resulting in no large-scale liquidations.

As both Bitcoin and altcoins fell sharply, derivatives traders were already likely incurring losses. For coin-margined positions, the drop in coin prices combined with the severe depegging of collateral assets further eroded margin value. USDE fell to as low as $0.65, wBETH to $0.20, and BnSOL to $0.13. Even hedged portfolios could not withstand the margin collapse, triggering cascading liquidations across Binance’s futures positions and these three collateral assets. In addition to regular traders, market makers using these assets as margin were forced to close all positions and liquidate their collateral holdings.

Beyond margin-related liquidations, USDE was further affected by Binance’s 12% yield program, which encouraged large stablecoin holders to use Bn lending products for USDE recursive borrowing, amplifying the damage from this targeted attack.

The results were evident: USDE spot prices on Binance plunged far below those on other centralized exchanges (most of which stayed above $0.9), while on-chain redemptions of USDE remained normal. Similarly, the local lows of some altcoins on Binance were significantly below other exchanges, likely linked to forced liquidations by major market makers—pending further market confirmation.

The 24-hour spot trading volume of USDE, wBETH, and BnSOL on Binance was around $3.5–4 billion, with estimated realized PnL turnover between $500 million and $1 billion. If Binance were to fully cover these losses, the total compensation would roughly be in that range.

The choice of margin collateral and the design of liquidation pricing have become the key points tested by this market event. Financial product innovation requires greater prudence, and exchanges still have much to improve in their risk management systems.

Another piece of evidence suggesting the attack was premeditated is the timing—it occurred precisely between Binance’s announcement of an oracle price adjustment and the actual implementation. The announcement was made on October 6, with the change scheduled for October 14, providing attackers with a clear window of opportunity.

Although Binance’s risk team had shown some awareness, the attackers managed to exploit the timing gap.

Finally, regarding liquidation pricing design, I commented that for PoS-based native assets, even considering liquidity discounts, liquidation oracles should maintain a hard floor rather than rely on spot order book prices. This is especially critical for exchange-internal margin trading, where counterparty and operational risks are inherently embedded.

As for whether USDE maintains a true 1:1 hard peg, that remains debatable. The Luna–UST collapse serves as a reminder: at that time, Binance suffered significant losses defending UST around $0.7.

If Binance insists on using USDE as unified account margin, it would be more prudent to limit the maximum position size supported by such collateral based on its market liquidity and elasticity, ensuring better systemic resilience.

Tom Lee, Chairman of Ethereum treasury firm BitMine, said in an interview with CNBC that today’s market pullback may be overdue to an extent. He noted, “Since the April low, the market has gained 36%. Today’s decline is the largest in the past six months. The fear index VIX surged 29% at one point, marking the 51st largest single-day move in history, ranking among the top 1% of extreme events, reflecting investors’ strong flight-to-safety demand. Today’s sell-off is actually a healthy shakeout. The market is indeed nervous, but unless there’s a true structural shift, this kind of pullback is a good buying opportunity. I wouldn’t say the market has bottomed yet, but based on the current setup, returns over the next week or month should be positive.”

Investor @mindaoyang stated in a post that the current market crash bears similarities to the LUNA collapse, as both occurred when major exchanges began accepting “non-fiat” stablecoins as high-collateral assets, allowing risk to penetrate across exchanges. He noted that it was UST back then, and now it is USDe. Common approaches to using such stable assets as collateral include setting high collateral ratios with fixed price pegs, or using market-fed prices with lower collateral ratios. The most dangerous combination, however, is applying market-fed pricing while allowing high collateral ratios—especially when centralized exchanges have low arbitrage efficiency, amplifying systemic risk. He added that LSD-type assets face similar issues, being essentially volatile assets disguised under the appearance of “stability.”

Follow us

Twitter: https://twitter.com/WuBlockchain

Telegram: https://t.me/wublockchainenglish