Monday 20th October 2025
By Raye Hadi | @rhadiARK
On October 9, China announced that it would weaponize access to rare earth metals, setting off a chain reaction that resulted in one of the largest crypto liquidations in history. Donald Trump responded quickly on Truth Social that the US could impose a 100% tariff on Chinese goods in response to the rare earth announcement, sparking a wave of bearish sentiment across global markets, including crypto.
Before Trump’s statement, a mysterious trader or group of traders, placed large short positions on Hyperliquid, an onchain perpetuals exchange. Perpetuals are blockchain-based derivatives that let traders take leveraged long or short positions without expiry, maintained by a funding rate to keep prices aligned with the underlying assets. As various financial markets responded to the tariff threat, the combination of widespread selling and concentrated shorts triggered a cascade of liquidations, catching many crypto traders offsides. Those positioned long in anticipation of rate cuts and bullish seasonality were wiped out as open interest (OI) collapsed. In one day, Bitcoin and Ethereum OI collapsed from ~$67 billion to $33 billion and ~$38 billion to $19 billion, respectively.
As the shockwaves reverberated, retail and institutional traders faced steep losses, triggering liquidity and network stress that impacted both exchanges and DeFi protocols. Some altcoins plunged 40-80%, and Ethereum transaction fees spiked briefly from ranges a couple of dollars or less to over ~$600 per transaction. By some estimates, losses mounted to $19 billion and wiped out 1.7 million trading accounts.
Amid the turmoil, battle-tested DeFi protocols proved resilient. Without issue, Aave withstood the stress test, liquidating $180 million in collateral in a single hour. Despite record traffic and volume, Hyperliquid’s onchain perpetual futures platform suffered no downtime,while Lighter, another onchain perpetuals platform, was down for several hours. That said, Hyperliquid forcibly closed many trader positions through Auto-DeLeveraging (ADL), a mechanism that liquidates positions during extreme volatility to maintain exchange solvency.
Centralized exchanges did not escape the turmoil. Binance’s ADL caused API failures that disrupted the pegs for some stablecoins, notably USDe (Ethena).12 The malfunction prevented market makers from peg arbitrage, causing USDe to briefly depeg from $1 to $0.68.13 As a result, Binance liquidated positions—aggressively and unfairly, in our view—a mistake for which they later compensated many users.14One of crypto’s largest daily liquidations highlighted both the efficiency and fragility of the crypto ecosystem. Many traders learned about mechanisms like ADL and the risks of centralized infrastructure and excessive leverage the hard way. Above all, the day served as a reminder that this new asset class is still nascent
Swahili 
English 
French 
Portuguese 
Chinese