In the new year, we need more sound mechanisms and rational trading; otherwise, 10/11 will repeat itself. CoinGlass data shows that the forced liquidation amount in the cryptocurrency derivatives market will reach $150 billion in 2025. While it may appear to be a year-long crisis, it is actually a structural norm in the derivatives-dominated marginal price market.
Forced liquidation when margin is insufficient is more like a periodic fee levied on leverage.
Against the backdrop of a total annual derivatives trading volume of US$85.7 trillion (an average of US$264.5 billion per day), clearing is merely a market byproduct, stemming from the price discovery mechanism dominated by perpetual swaps and basis trading.
As derivatives trading volume climbed, open interest rebounded from the deleveraging trough of 2022-2023, with Bitcoin's notional open interest reaching $235.9 billion on October 7 (when Bitcoin's price touched $126,000).
However, record open interest, crowded long positions, and high leverage in small and medium-sized altcoins, coupled with global risk aversion triggered by Trump's tariff policies that day, led to a market reversal.
Forced liquidations totaled over $19 billion on October 10-11, with 85%-90% being long positions. Open interest decreased by $70 billion within a few days, falling to $145.1 billion by the end of the year (still higher than at the beginning of the year).
The core contradiction in this volatility lies in the risk amplification mechanism. Regular liquidation relies on insurance funds to absorb losses, while the automatic deleveraging (ADL) emergency mechanism amplifies risks in extreme market conditions.
When liquidity dries up, ADL (Advance Limitation) is frequently triggered, forcibly reducing profitable short positions and market maker positions, causing market-neutral strategies to fail. The long-tail market is hit hardest, with Bitcoin and Ethereum falling by 10%-15%, and most small asset perpetual contracts plummeting by 50%-80%, forming a vicious cycle of "liquidation – price drop – further liquidation".
The concentration of exchanges has exacerbated the spread of risk. The top four platforms, including BN, account for 62% of global derivatives trading volume. Under extreme market conditions, the simultaneous risk reduction and similar liquidation logic have triggered a concentrated sell-off.
In addition, the pressure on infrastructure such as cross-chain bridges and fiat currency channels has hindered the flow of funds across exchanges, rendering cross-exchange arbitrage strategies ineffective and further widening the price gap.
Of course, the 150 billion settlement throughout the year is not a symbol of chaos, but rather a record of risk aversion in the derivatives market.
The 2025 crisis has not yet triggered a chain reaction of defaults, but it has exposed the structural limitations of relying on a few exchanges, high leverage, and certain mechanisms, at the cost of concentrated losses.
In the new year, we need more sound mechanisms and rational trading, otherwise 1011 will repeat itself.
