Market Maker CEO Challenges Exchange Blame Game
Evgeny Gaevoy, the founder of algorithmic trading firm Wintermute, has stepped into the ongoing debate about last October’s crypto market crash. He’s pushing back against claims from several industry leaders that Binance’s actions were primarily responsible for what happened.
I think it’s interesting how this discussion keeps evolving. Gaevoy specifically mentioned that he wishes public figures would choose their words more carefully when discussing these complex market events. He doesn’t agree with the “software glitch” explanation that’s been circulating.
The Flash Crash Explanation
“It was a flash crash on a mega leveraged market on illiquid Friday night driven by macro news,” Gaevoy wrote. This perspective shifts the focus away from exchange-specific issues and toward broader market conditions.
But other voices in the industry see things differently. OKX CEO Star Xu has been quite vocal about his concerns. He accused Binance of encouraging users to convert stablecoins into $USDe, which he described as a “tokenized hedge fund.” The problem, according to Xu, was that Binance allowed $USDe to be used as collateral with the same treatment as more established stablecoins like USDT and USDC.
The Leverage Loop Problem
Xu explained how users created what he called “leverage loops.” They would convert USDT or USDC into USDe, use that as collateral to borrow more USDT, then convert that borrowed USDT back into USDe, repeating the cycle. This created artificial APYs that sometimes exceeded 70%, which sounds unsustainable when you think about it.
When market volatility hit, USDe lost its peg, trading as low as $0.65 on Binance while staying closer to $1 on other exchanges. The cascading liquidations that followed were severe, and weaknesses in risk management around certain assets apparently made things worse.
Exchange Responses and Compensation
Binance co-founder Yi He responded somewhat cryptically, writing, “Whales who trade on Binance know better what actually happens when the tide goes out.” There was also a now-deleted post suggesting that ARK Invest’s Cathie Wood wasn’t qualified to comment since she doesn’t use the platform.
What’s clear is that the crash had real consequences. Binance has paid out $328 million in compensation to affected users, expanding an initial $283 million payout announced shortly after the event. The exchange maintains that its core infrastructure remained operational throughout, attributing the crash to macro shocks, market maker risk protocols, and Ethereum network congestion.
Perhaps the most telling comment came from Xu, who acknowledged that speaking openly about systemic risks can be uncomfortable but necessary for the industry to mature. He even predicted that OKX might face coordinated misinformation attacks as a result of his statements.
It’s worth noting that many people point to President Trump’s announcement about imposing 100% tariffs on Chinese imports as the actual catalyst for the October 10 crash. Bitcoin and Ethereum prices dipped significantly, setting off panic trading across the board.
This whole situation shows how complex crypto market dynamics can be. Different players see the same events through different lenses, and assigning blame isn’t always straightforward. What started as a market crash has turned into a broader conversation about risk management, exchange practices, and industry transparency.
